How To Make Back Your Losses From Trading | Podcast Episode #16

0:00
Hey, everybody, this is Ryan Mallory doing another podcast with you. Today’s question I want to tackle is, how do I make back my losses? Now, if you’ve been a trader for any period of time, you will know that. You go through a series of drawdowns.

0:16
I mean, every trader has to go through them, every trader has to fight through them, and every trader has to, if they want to continue trading, has to recover from them. So, The big question here is, how do you come back from your losses? And this is a pretty relevant question just because just yesterday, the Dow sold off 666 points and you had a massive sell-off as well in the S&P to the tune of 60 points and the Russell.

0:41
Sold off and the NASDAQ sold off, and the whole market was bleeding red. You had decliners pretty much about a 10 to 1 advantage over, uh, advancing stocks. So it was a massive red day. A lot of people didn’t see it coming. In fact, most people didn’t see it coming.

0:57
And the question is, is, how do I make back these losses? Now, for those who don’t know what a drawdown is, let me go ahead and just tell you real quick. A drawdown is like having $100,000 in your portfolio. That’s the highest that it’s ever gone before after a series of really good trades.

1:14
And then it is now at $90,000. So after a series of bad trades, it’s pulled back 10% and instead of being at $100,000 which was your all-time highest, you’re now sitting at $90,000. Dollars. That’s a drawdown. And every trader goes through them.

1:30
Sometimes they’re 2 to 3%. Some of your more aggressive, uh, traders that have much wider stock losses or hold stocks for a much longer period of time can go through drawdowns of 30 to 50%. And so the question is, is how do you make your money back from such a big sell-off in your own personal portfolio, a big drawdown.

1:51
And For a lot of traders, what they will do. Is Become more aggressive in their trading, they will double down on losing trades. So that, for one, is a big no, no. You don’t double down on your trades.

2:08
You don’t triple down, you don’t quadruple down. And traders tend to fall back on this as their go to option when things get bad. If they are in SPY and they were down 5% on that trade, they will double down, but all that does is double your risk and double the pain because, yes.

2:28
In some markets that you can be forgiven in that, but. What you’re not really doing a very good job of is managing yourself, and the first sign of a person who’s doubling down on the trade. is a person who cannot manage the emotions of trading.

2:46
They can’t take a loss. And if you’re going to be in this business, you have to take a loss. If you don’t take a loss, you’re not going to be in this business for long. You have to be able to take a loss. And the first sign of not being able to take a loss is a person who doesn’t, or who a person who does double down on losing trades.

3:03
You don’t double down on losing trades. You just don’t do it. So, let’s go ahead and just say doubling down, tripling down, quadrupling down, whatever you want to call it, that does not work in earning back your losses. And in most cases, in a majority of cases, it only leads to more losses.

3:24
So don’t do it. Now If you’re going to keep the drawdowns to a minimum, you have to take losses. Losses are one of those things that people just hate doing. I actually found in my experience of teaching traders over the years, women do a far better job of taking losses than men do.

3:41
You know, as a man, I know that I have struggled over, uh, the, over the years, particularly in the beginning of taking losses. Now it’s like, you know, taking a sip of water. It just comes naturally. It’s something that’s easy to do. I don’t mind taking losses.

3:58
I expect to take losses. I expect to take losses about 45% of the time, so. You have to be willing to take losses. If you do that, you’re already on the path to making back your money because you’re cutting out the, the, the losing trades and making it to where your drawdown is not nearly as bad as it could be.

4:20
So, you know, if you, you’re a person who’s trading GoPro and you were trading it back in the heyday where it was, you know, much, much, much higher, you know, by having stop losses and not doubling down, you’re not in a situation today where you’re down 90% on your investment, OK?

4:36
So, you have to, by, by having stop losses, you’re cutting the extent of your drawdown dramatically, OK? As for making back that money, well, for one, You have to remain disciplined in your trading.

4:52
You can’t just say that, all right, I, I’m, I’m down 10% right now from my capital, from my portfolio’s highs, and I need to get that back. What a lot of people will do, besides just doubling down on stocks, which obviously they should not do, they will become more aggressive in their trading.

5:09
They will buy every dip. They will buy every, um, stock that looks like it’s been hammered. In hopes of trying to make back that money from a market sell-off. That is a big no no.

5:36
You’re just again adding to your drawdown in your portfolio, and that’s not what you’re trying to do, so. The biggest thing when it comes to trading is to have an approach trading for how you’re going to make money, all right?

6:01
And whether it’s swing trading or day trading, you know, you have to know how you’re going to manage the risk, and you also have to know why you get into a stock, OK?

6:26
When people get down on a trade, they. Or when they get down in their portfolio, they will actually. Become, like I said, become more aggressive, but they will trade with the aim of making back that money, not the aim of making good quality decisions when it for, for their trading portfolio and for their trading strategy.

6:44
They pretty much abandoned their, their, their strategy altogether, and they, they become foolish in the stocks that they trade and they just don’t do it right.

7:04
So, You have to stick to your trading strategy. And the only way you can stick to your trading strategy is by having a strategy in the first place.

7:25
So a lot of traders, they don’t have strategies. And when you don’t have a strategy in place, when you don’t have a system for why you buy and sell stocks, when you don’t have that in place, You’re going to only add more pain to your drawdown.

7:51
You don’t have a way to get out of it. You’re just buying for the sake of simply buying.

9:05
But what you have to understand. Is that the only thing that matters in your portfolio is what it’s worth right now.

9:24
What it was worth two weeks ago before you made a series of, of, of losing trades or where it was at a year ago, or, or any point in time, doesn’t matter. It only matters what it’s worth right now.

9:43
And that’s the starting point. Your capital and your portfolio value each day is your starting point to making more money the next day and the day after that and the day after that, and you want to keep adding to it day after day after day and being consistently profitable.

10:02
You can’t worry about what it was at yesterday or a month ago or a year ago.

10:20
But the only way you can really get back to that point in time where your portfolio is at $100,000 is just making good trades right now.

10:53
So, My final point here is. Don’t be overly aggressive.

11:18
The market doesn’t care about your situation, your circumstances, or your need to get back up to where your portfolio used to be and to recover those losses.

11:56
So, Don’t be aggressive. If anything, slow it down a little bit.

12:13
You don’t have to make it back in one day.

12:38
This is a perfect situation here, what I’m doing in this podcast, and that you have to recognize that the value of your portfolio right now. is all that matters, and you have to just take steps forward.

12:55
Make one good trade, make a next, make another good trade.

13:18
So what I’m Telling you to do here is take it slow, take it easy.

13:38
And then before you know it.

13:57
Just take it a trade at a time. Don’t be too aggressive and follow your strategy and trust your strategy.

14:15
Make sure you have a strategy in place. All this, what I’m telling you is worthless if there’s not a profitable trading strategy that you are exercising.

14:38
And then when you do that, then you can start making back that money.

15:03
That’s gonna be it for today on the Share Planner, uh, swing trading podcast. I hope you liked it. If you have any questions, feel free to email me. I’m glad that you took the time to listen today and have a great day and God bless.