If we’re a trader who is determined to get ahead and find the best investment or trading strategy, we will have periods where we were stuck in a hole. I know, as I’ve personally been in many.
Perhaps you’re even in one at the moment. Your account is in the red for whatever reason and now you have to manage your way out of it, both mentally and financially. There are a host of reasons how you got in the financial hole, whether it be ignoring your risk strategy or your method is not appropriate for current market conditions because you are trying out a new sector and need to work out the best strategy.
The emotional and mental result is the biggest thing to manage at this point, as the inclination is to hide, to feel guilty at losing so much money, or to be angry with yourself for getting caught in the rut.
Our natural response is to panic or feel so overwhelmed that we can’t act or don’t know what to do first. This obviously is not going to help as panic just clouds judgment and being overwhelmed or frozen can risk greater losses if trades don’t get closed out.
Also, as traders, we tend to optimistically think there is always the hope that a windfall trade will come next and all will be sorted. Maybe we can even quickly trade ourselves out with just a few big trades.
When we begin fantasizing like this, it is born out of our emotional response and not based on logic and fact. So the emotions is what needs to be managed as there is now a great risk of doing something silly which is not based on rational detached thought processes.
Guilt of losses and then compounding it with more loss needs to be managed. Every investor and trader needs to enter the financial markets knowing that they will make losses and that there will be downturns.
We may need to review things if we ignored our risk strategy and need to be more disciplined, but we have to remember that no investor or trader is always right. Even the great Warren Buffett and Paul Tudor Jones have made many mistakes.
Take a deep breath. Look at the causes and ascertain if your strategy is the issue as that obviously needs to be dealt with immediately before jumping back into the markets and slowly but surely recouping the money.
It won’t be quick and simple, but perseverance without emotional baggage is the best start forward.
Take heart, as all successful investors and traders have got into the hole one time or another. The trick is to use it as a learning curve, gain the lessons it can deliver and move on.