The Three Types of Day Trading Losses (and what you can learn from them)

As lucrative and profitable as day trading can be, losses are part of the game.

Every trader, no matter their caliber, has faced losses.

That’s the harsh reality of the world of trading.

What distinguishes a good trader from a mediocre one is how they manage their losses.

No two trades are ever the same and you cannot possibly win every time. Accepting that losses will be a part of your trading life is important. It will keep you motivated and focused.

Whereas if you let your losses get to you, it can create issues now and in the future…

There will be days when you’ll face losses and the key to success is to not let that one bad day ruin the rest of the month (or the year for you). Losses can evoke some very negative emotions and it’s common to go in a downward spiral. But traders who are here for the long run know how to manage such days and not let their losses get to them.

Traders who are driven, have the right guidance and know what they are doing, recognize that losses can be good for them. Don’t believe me? It’s something I have discussed in this video – Is Trading Loss Good For You?

For most people, losses can affect their mental makeup, as well as their confidence.

This is why most beginners give up too soon.

In many years as a teacher and mentor, I’ve noticed that something more devastating than the losses can be how we deal with them. Fear and denial can create more problems in the long run and lead to more losses than necessary.

It is virtually impossible to be cost-effective with every trade; that’s why you must be far-sighted enough to keep your losses low.

Knowledge of what types of losses you might encounter will help you stay aware of what you can expect and how you can manage them.

In today’s article, we look at three categories I consider when it comes to losses.

We have discussed Overtrading previously in this article.

Overtrading happens when beginner traders mindlessly trade everything, opening many positions in hopes of huge wins.

This type of loss usually happens after you have traded for about 2-3 months and when you get used to what the market can look like. You might see a repeatable action every day and start to believe that it’s a pattern.

Your strategy might have worked once or twice, but the mistake you’ll end up making is to keep trading this “pattern” believing it will yield profits every time.

It’s a myth that the more you trade the better the chances for profits. Quite the opposite.

Trade less, focus more.

That’s the mantra I believe in!

As an example, just a look at my trades for three months here in this article. Even though there was not much activity and I did not trade every single day, I was able to make over $4,000,000 because I was focused and did not trade more than I should have.

It’s not so much about hard work, it’s about smart work…

That is why the best advice is to believe more in the quality than quantity of your trades.

The best practice is to engage in just the right volume or trading.

You’ll burn out if you keep trading continuously and you won’t make the best decisions.

By the end of the day, you’ll end up with too many losses.

Besides, trading constantly is a sure-shot way to ensure you get obsessed with trading and won’t have a life outside of it.

To be honest, it’s pretty hard to avoid overtrading as it’s in our nature to want to achieve more and be better. It is also easy to become impatient and trade all day every day, especially when you’re on a winning streak.

I still run into this problem about 4-5 times a year!

That is correct, even someone like me who has been doing this for years and built a $11+ million portfolio does succumb to overtrading sometimes.

I have to stop and correct myself when I’m doing it.

The solution to this is to get your trading practices in control before you end up with a damaging result that will eventually become irreversible.

While trading actual patterns, essential losses are likely to occur.

Any pattern that actually works, one with a decent winning percentage, succeeds around 70-80 percent of the time.

The remaining 20% is still a chance for losses, which is sometimes unavoidable.

With proper risk management, you can keep this under control. But even with good risk management, you have to be extra careful.

The reason being that day trading is a career that does not provide many chances to fail.

If you take a loss 6-7 times you are likely to wipe out your account.

A tip to avoid wiping out your entire account because of these essential and sometimes unavoidable losses is to keep a portion of your account money aside. For example, if you have grown your account from $25,000 to $50,000, withdraw 50% and keep it in a backup account.

If you have a backup account you can still survive as a trader despite multiple losses in a row.

In trading, there are times when you can fumble.

So don’t put all your eggs in one basket and keep one(or two) backup accounts.

Having said that, no matter how careful you are, essential losses will occur.

Do not let them get to you and take them as opportunities to learn.

Whether you had a momentary lapse in judgment or just a day of bad luck, do not take it to heart and pick yourself up. Hold your head high and try again tomorrow. The best of traders have had these losses and do you know how they got better? By learning from them!

Failure hits us harder than success, but it shouldn’t.

It should make us happy there are opportunities to learn and grow.

The ones who are not afraid of failure are often the only ones who succeed.

Because they do not give up!

Don’t give up because of essential losses and instead, analyze what went wrong and do better next time. Discuss with your peers and mentor what could have gone wrong.

These temporary losses are just delays, not defeat.

Even though we know that losses are part of the game, some losses tend to hurt more.

If you have been trading for a while you know what I mean.

You have probably faced a loss you could not get over…

When a trader makes an attempt to win back losses by making far riskier trades, it’s called revenge trading. Fear, frustration, and overconfidence can all lead to revenge trading.

Once you go down this path, you are literally gambling.

Gamblers addicted to gambling don’t let go of losses easily. They will chase the money they lost until they have nothing left. They will play without a strategy and ignore all risk management, to get the lost money back.

That’s basically what you’re doing when you revenge trade.

At this point, you’d be just testing your luck, not doing proper trading.

This type of trading can literally wipe out your account.

The good news is… There are ways to prevent revenge losses.

Contact your brokerage and set up a max hard stop. Let’s say on any given day you exceed $3,000 losses, the brokerage will automatically cover for you. This is pretty easy to set up. This facility allows you to stop trading for the day after you’ve lost what you allowed yourself to lose.

Once losses start to escalate it will be hard to stop them.

However, after this hard stop, you cannot place another trade, and this is good because making any trades after you’re already exceeding max losses is not a good idea. When you’re in this situation, any trade you make later is under the influence of this loss.

You’re in a mindset that’s focusing on the loss.

Your decisions at this point will not be good.

Putting a hard stop in association with your brokerage will help to prevent excessive losses. A lot of people don’t take advantage of this provision and within a few months of starting, they lose all their money.

It’s a human tendency to want to make back your losses, but sometimes you must accept them.

Not wanting to lose at all is not a good mindset to have in trading, a field where losses are common. Fear of losing will make you make trades in fear rather than with logic. So make sure you don’t let your emotions get the better of you and keep revenge trading in check.

Traders need to always keep in mind that emotions or your gut feeling don’t belong in the world of trading. Instead of chasing a loss to turn it into profit, learn to let it go.

There’s always tomorrow.

Trading, with all the profits and losses that come with it, often leads to heightened emotions.

These emotions of fear, excitement, or greed, will try their best to affect your trading plan, resulting in losses. When it comes to trading, it’s easy to let your emotions get the best of you.

Your biggest next step here is to train your mindset in a way that you learn to take losses as they are and not take them to heart. A change in mindset like this doesn’t come easy.

In order to manage losses and the emotions that come with them, one of the most important things you can do here is to build your confidence as a trader. When you’re confident in your skills and ability, you make trades without emotions and without bias.

Confidence in your abilities comes with knowledge. And to build your knowledge, I would recommend going through my Investing for Beginners series wherein I take you through the workings of a career in trading and how to make it big.

I also recommend working with a mentor. Acquiring knowledge from those who have done trading successfully before you is a smart thing to do. This also requires you to put in a lot of research before joining a mentor’s program!

Strategies that can help you in trading cannot be found for free on the internet so I would also recommend you check out my program, The Freedom Challenge.

Even when you finally get enough confidence in your knowledge and talent, remember that not all days will be the same. When faced with difficult trades, it’s always helpful to pause, reevaluate the situation, and take an assessment of the situation.

Sometimes you have to step away from the laptop and go take a walk.

Clear your head after a disappointing loss.

Process your emotions and only then come back to trade.

Finally, be sure to check out my Free Day Trading Newsletter to stay updated on what’s happening in the industry and for best practices. These will keep you focused.

Next steps.

It’s time you stop wasting time, missing opportunities, and losing money due to platforms that only give you access to part of the process. The mechanism is simple, effective and fast.

Speed and efficiency are two of the main things we focused on while building StockCraft. To make the most of watchlists and choose the best stocks possible, join the StockCraft family and get access to our powerful watchlists (and many other amazing features). Get access to our sophisticated screening software so you can track and follow the right stocks. Also, create your own Watchlists and get access to some of the ones we personally use. The time to make a mark in trading is NOW so the sooner you get started, the better. All you have to do is follow this link and choose the plan best for you and your trades.

And if you’re keen to learn more day trading tips, check out this Investing for Beginners series. I’m devoted to mentoring beginners in order to make day trading your primary source of income. I also invite you to take a few further steps with me:

Join The Freedom Challenge. This is my flagship program for traders who want to level-up and turn Day Trading into their primary income stream.

Subscribe To My Youtube Channel. This is where I share practical day trading tips and training on how to trade, as well as behind-the-scenes insights into the trades I make.

Join My Newsletter. I write these emails for people who want to learn the basic Day Trading Tips and the practical steps they should take to get started.

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