Once you’ve suffered a huge trading drawdown, how do you recover?


I imagine this question is one that more than a few traders are struggling with at the moment.

Dear John,

Here’s a question. Once you’ve suffered a huge drawdown, what’s the best way to recover? I suffered the losses from making very stupid mistakes, but I’m not sure how to recover from here. Can you offer any help?

Thanks,

Glenn C.

Believe it or not, Glenn’s question has a silver lining to it. Of course it’s always rough to suffer a big drawdown. It can be a very destablizing event, above and beyond the obvious financial impact. In this case, though, Glenn’s losses came from what he as described as boneheaded moves on his part. That’s a good thing because it immediately implies something which is correctable. It’s much worse when you feel like you’ve been doing everything right and take a big hit.

That said, rattled confidence doesn’t generally come back quickly, as the current market environment is telling us quite clearly. It takes time to build back up as the result of some success. Generally, the best path back from the abyss is to perhaps shift back to demo trading for a while and to definitely cut way back when going back into live trading. Progressively build yourself back up to normal risk levels over time as your confidence returns.

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About the Author
John Forman, author of this blog, has traded for more than 20 years, is a professional market analyst, and authored The Essentials of Trading. He is an active participant in trading forums, consults for trading related businesses, as published literally dozens of trading articles, and has been quoted in a number of books and in the media.
** See John’s full bio.

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  • http://blog.mdwoptions.com/options_for_rookies/ Mark Wolfinger

    1) Forget about the loss. It’s gone

    2) Start with your current bankroll and ry to make money going forward.

    3) Do not think about getting back to where you were. Think about having more money at the end of this month than you have now.

    4) Obviously pay more attention to risk management.