How to Best Deal with Your Losses

by Andrew McGuinness     Aug 16, 2019

The first rule of Trading101 is to learn how to accept both gains and losses. As a trader, you’re in the business to focus on trades that will get the highest returns. However, it is also necessary to take into account possible losses that may come.

Even when a trade does not seem risky when looking at fact trends and market patterns, know that there is still risks involved. Investment losses should be anticipated just as much as investment gains. If an investment results in a loss, you need to stay objective. There are traders that overreact when suffering a loss and it puts them in a worse position than they started with. Experienced traders know that losses should not be feared – but prepared for. They are prepared with steps on how to remedy a loss. Listed below are ways you can prepare for possible losses as a trader.

1. Assess if it’s temporary

When you first experience a substantial loss, you might think it best to sell your shares and move on to better investments on the market. However, before a dip in the market pushes you to make drastic decisions, ask yourself: is this permanent or temporary? One dip may show signs of larger losses to come, but it is just as likely to lead to high returns.

You never know what the future of an investment may hold. Ask yourself: would you be able to sustain a blow to your capital with this investment loss? If your answer is no, stick with your investment and wait for more signs of what’s to come. A dip may be a big scare at first, but it is not a definitive sign of how your investment is going to do in the future.

2. Stay involved

If you’ve made an investment that is growing steadily, it is easy to maintain your interest and keep track of the updates. When an investment is not doing well, you may lose interest and choose to neglect it. But in order to become a successful investor, it is essential to stay up to date with all your investments – no matter how bad they may be doing on the market.

Every investment should be given a fair amount of attention. If an investment is not doing as well as you hoped it would, you can look into it and analyze how it’s done over time. You can also check how it’s ranking compared to similar companies in the market to fully assess if it’s still worth your time, money, and effort.

3. Know when to admit an investment is hopeless

Investments in a portfolio reflect the promise you saw in it when you chose to invest in it. But you need to understand that things change and the promise you saw may not be there anymore. As mentioned in number 1, you should not give up on your investment easily. You need to assess if the dip is temporary or permanent. And as mentioned in number 2, you need to keep yourself updated and take everything into consideration when assessing if an investment is still worth your time, money, and effort. If you find yourself having a negative response to both numbers 1 and 2, it might be time to cut your losses and let go of an investment.

Conclusion

Dealing with losses is never easy but as a trader, you should always be prepared for it. You need to be smart and fully assess if an investment is still worth your time, money, and effort before deciding to cut your losses and let go of it.





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