Getting Back Your Losses in Trading

Verified Profitable Trader

I wanted to write a forex advice article today about what happened to me this weekend, and how it relates to trading.

A Dutch Friend
Last Friday, a very good friend of mine named Mark came into town for a few days.  Mark is Dutch and trades derivatives for a multi-national Oil and Chemical company.  Anytime he comes to see me, two things are certain to happen;
1) we are going to have a glass of good Scotch
2) we are going to play poker at the casino and will likely not get home till sunrise

poker and trading

For the first two hours, my table play was going a little slow as I just wasn’t getting any hands. Unfortunately this led to me losing many of the blinds and small bets, now down to about$110.

Luckily, some really good hands like a flush, trips and full house came my way where I won some decent sized pots.  I was now just over $1000, so doing well on the day being over 3x my buy-in.

A Two Pair Hand
Then I got an A3 suited sitting in the big blinds.  Everyone folded except for two players who limped in.  Sensing weakness I decided to raise and the other two called.

Flop lands A / 3 / 8.  I’ve got two pair and there is no flush draw on the board.  I probably have the best hand since the limpers unlikely called my raise with 8 /3, and an A 8 would have likely raised with all folds prior.

One folds and the other calls with me being in position.

A Jack comes on the Turn with no flush possibility.  He checks, I raise $50 on a pot of $75 and he calls.  I probably still got the best hand.  Maybe he had J8 pre-flop, but AJ is unlikely to limp pre-flop. J3 is unlikely play to a raise, so I probably have the best hand.

The River card comes a 7 which he checks.  I bet $125 and he goes all in.  To call, I need to put in about $350 more which would leave me with around $500 left.  Now I have to go into a deep think to figure this out.

over thinking in trading

Overall, his betting really confused me.  He limped in out of position, called a pre-flop raise out of position, had no flush draw, and called every bet along the way.  It is unlikely he had pocket Aces as he limped pre-flop.  Maybe a KJ, but he would have likely folded the Ace flop.

Because his betting pattern didn’t make sense, usually that means a bluff or a trap.

I decided to call.

Turns out, he had 9 T off suited, and on the river had hit his straight (7-J). He had <16% chance of hitting his straight on 71% pot odds, so way inverted R:R.

Regardless, he won and I went from over $1000 to about $500 in 5mins.

Needless to say, I was a little stunned – not because of the money, but because of how I misread the play.

In The Past
For the next 10 hands, I was mostly stuck thinking about the hand – wondering where I went wrong, what I could have done differently, going over his reactions to see what clues I missed.

And herein lies the problem…I was stuck in the past and completely separated from the present.  All my energy, concentration and focus was in the wrong place.

Next thing you know, I’ve lost a few more hands and am down to $250, and am now negative for the day.  It was now 4.30am so a good chance I was going home a loser which almost never happens for me in poker.

What Would I Do…
Immediately I started to think about trading and what would I do in a similar situation.  I came to one conclusion – that was to let it go and get present with the moment.

making money
By 5.30am, I had a stack of over $600 after winning two big hands and got up for the night.

What made me write about this was something I saw in a trade journal today from one of my newer students.  They had lost a big trade and then lost the next few trades shortly after.  They did not follow the system, but had enough awareness to write down they were trading to ‘get back their losses‘.

Perhaps they really couldn’t lose that money and were expecting to win to pay some bills.  Or maybe they made a mistake and are now punishing themselves for such a trading crime.  Whatever the initial ‘reason‘ was, two things are completely evident;
1) they have not accepted the loss
2) they are stuck relating to the past and not the present

The irony of it is, you cannot ‘get back‘ your losses.  Once you’ve lost that money, it is gone.

< Than Your Full Edge
The great thing about this market is you can make money anew at any time.  But you cannot ‘get back your losses‘.

In fact, this is when your account is most vulnerable, because you have psychological justifications for not trading according to plan or system.  You’re trading off emotion, but also fragmented from the moment and separated from your intelligence.

Has this happened to you before?

I’ll confess it has happened to me, many times in my earlier days.  Regardless of what happens, the best thing you can do is let it go so you can be present in the moment.  Maybe you need to take a break to get your head straight which is not a problem.

But remember who is making money in this market and who you are really competing against;
-seasoned traders
-computer algorithms

Anytime you are trading <than your full edge and intelligence, you are at a severe disadvantage to the above players.

By trying to get back the losses, you are doing one, if not all of the following;
a) stuck in the past (disconnected from the present)
b) not accepting reality as is (never works)
c) likely trading off more emotion than clarity (no bueno)
d) managing your P&L, not trading the market or your system (a big one for newer traders)

psychological compass

In Conclusion
Part of developing into a successful trader is becoming more self-aware.  This is especially true when things go really bad as we are faced with a poignant, and often psychologically painful (or uncomfortable) reaction to reality.  But nothing could be more important because when our psychological compass is off, you are at the greatest risk for making further losses.

This was the same for me shortly after I lost my big hand and likely has happened (or will) to you in your trading.  But hopefully you can now realize how critical it is to not try and ‘get back your losses‘ as its a futile effort.

When recovering trading losses it is best to start all over again with the present moment, and make the best trades you can.  If you do, in no time, will you be back to winning again, and likely have a higher balance than before the loss.  Then the loss was more of a learning experience instead of a hurdle to your growth.

I’d like to end with a short story about a Buddhist Lama and their student.

Being really unhappy with how they have led their life, a student who has just started to meditate came to his Lama and shared his disgust with how his life has been going.

He then stated to his Lama:

“I wish I could just start my life all over again”

The Lama, after a very short pause responded:

“Your wish has been granted” 

I hope this helps and that you found this article useful.

Kind Regards,
Chris Capre

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