How To Recover From Big Losses
Nobody likes to hear it, but there is likely to come a point during your binary options career when you are going to suffer some sizeable drawdown. Not every single trader is going to blow an account or even lose a huge portion of an account, but it is not uncommon, especially for new traders.
You may find yourself with a string of losses behind you totaling a third or more of your account.
Or you may simply be angry about the number of losses, even if your percentage loss is smaller. You may then find yourself asking a very common question:
How do I recover from this drawdown and start rebuilding my account?
Here are the steps you should actually take to recover from your losses—the slow and steady way.
Hidden in this question is a familiar fallacy. There is an unspoken assumption that you can “get back at the market”, and that there is something you can do, some action you can take, to hurry up and get back to square one. You may think there is a way you can suddenly make back all of that money, but this is generally a lethal error.
If you begin making sudden, major changes to the way you are trading, you are only going to lose a lot more money, and fast. You cannot get revenge on the market, and there is no way to build back your account overnight. After all, if there was, don’t you think you would be trading that way in the first place and winning a ton of money every day?
Stop trading with real money, right now.
That may sound unproductive, but it is anything but useless. Doing this will prevent the errors that cost you the money you have already lost from costing you even more money. You may or may not have figured out why you are losing money at this juncture. If you are aware of your mistake, then taking a break is still a good idea since it will give you time to clear your head and recover your wits. If you do not know why you lost all those trades, then that is your next step.
1 – Figure out what cost you all that money.
Have you lost a number of trades in a row (more than you would expect to happen now and again according to your testing statistics), or did you lose one or two really big trades? If it is the size of your lost trades that troubles you, and not the number of them, you may be doing nothing wrong insofar as your techniques go. It may just be that you have no money management plan, or your money management plan is not a rational one. How much of your account are you investing in each of your trades? New traders often think a number like 10% is reasonable. But that only means you have to lose three trades to blow through 30% of your binary options account. Stick with around 3% and you will not have these problems in the future.
If however you are suffering from strings of losses, large or small, you probably have a problem with your trading techniques. Do you trade purely on the basis of your intuition? Do you listen to the people you hear on the news? If so, you need to get yourself a trading system and go back to square one on the learning curve. In fact, review our beginner’s checklist, and make sure that you have squared away each item on the list before you start trading with real money again.
If you already have a trading method, go back over your trading journal and your trades and figure out why things are not working according to your expectations. You can always turn to online communities to get help with your trades.
Not all problems are technical in nature. Do you routinely get angry, confused, or conceited when you trade? If so, that can cost you money, especially since this emotional trading behavior can turn into a vicious cycle. There are also problems that are hard to identify and may be so nebulous you never actually determine their cause. These problems often will go away if you just stop trading for a little while and then come back to it.
2 – Clear your head.
Once you have determined the problems that are costing you money, you should feel a lot better automatically. For some traders, psychology is the problem in the first place, as I mentioned above. You need to always approach trading with confident optimism—but never with unrealistic overconfidence or conceit. Once you are in the right frame of mind for success and you have your trading system and money management plan ready to go, it is time to get back on the horse and see where it can take you.
3 – Back to demo trading.
You may feel ready to get right back into trading on your live account, but this is still not a wise idea. Test the changes you have made in demo to ensure that they are going to work in real life. This will also help you to deal with any psychological hurdles you are still facing, since you will be trading under less pressure. Once you start seeing routine profitable results in your demo account, you can begin trading for real again.
4 – Return to trading live.
Finally, you are ready to resume with your live trading. Do your best not to become gun shy at this point and avoid pulling the trading trigger because of past experiences. But if you do begin to notice problems with your profitability again, you will want to stop trading and repeat steps 2-4 again, and probably seek out additional help from the binary options community. This happens to a lot of people, and other traders are able to work their way through their problems. You can too, so be patient, do not give up, and be ready to take the long road to success.
It may be slow going at times, but it is the only road that will take you there!
Images: Stepping Stones