Introduction

Today, I am going to take up one of the most serious topics probably I can make a video on which is how to recover from a big trading loss.

However, at the start itself, I want to make one thing clear: this video doesn’t have any secret strategy or magic formula that will make a lot of money overnight. If you are looking for such videos, this would be the time to drop them off because you will be disappointed.

What I am going to talk about, instead, will be from my personal experience and not just from my losses, but also my experience with hundreds of such people with whom I have spoken to and helped over the years. I will also talk about the process I followed that helped me overcome some very adverse situations in the past.

My first big loss was about 5 Lakh rupees about 15 years ago when I bought a metal company and from the time I bought the shares, its price just kept falling from there and it almost felt like someone was intentionally trying to take revenge on me. I finally sold that stock at a loss of about 70-80%

At that time 5 lakh rupees was a very big amount for me and so took me a lot of time to recover.

My second big loss, in terms of an absolute amount, was when a stock I shorted got stuck in an upper circuit and it happened on a Friday. At that time there was no information available as to how these short deliveries were handled and so I went through 4-5 days just dazed and confused.

Since then, my relationship with losses has continued, although, they have become smaller over time.

You can also say that I have a PhD in taking losses. I know it sounds funny but trust me, this degree has a lot of value in trading.

So, from my experience, I will give a 7-step plan of how you can come out of a big loss.

Remember that none of them are shortcuts or secret strategies and that none of them will bring back those losses tomorrow. So if you’re looking for something remotely similar to that, you’re probably watching the wrong video.

I am here to tell you not what you want to hear but I am here to tell you what you NEED to hear. I also am going to tell you the psychological aspects of recovering from a big loss.

Alright, let us get started.

So, let us start from here – You incurred a big trading loss.

Rs.1 lakh, 2 lakh, 10 lakh or even Rs.20 lakh!!!! The exact amount doesn’t matter but what matters is that the loss was big for you.

The first thing that happens is shock and a  really powerful shock that brings a kind of a debilitating numbness, our senses become paralyzed and we are simply overwhelmed.

That is because you never imagined yourself taking that big of a loss and so it’s not easy to look at the loss and even accept that it happened. A friend of mine incurred a loss of 8 lakh rupees in a day and he said he couldn’t speak to anyone for the whole day because he was in such a shock.

After the initial shock, we go through all kinds of negative emotions.

We feel guilt, regret, ashamed as to how to share that news with our families. What would they think of me?

The unluckiest people are those who lost the money that didn’t belong to them. It could be money that they borrowed from their friends, relatives or the money that they needed for their family and now that’s gone.

They not only would have to bear the loss but also have to explain that loss to the people they borrowed the money from.

I have talked to many traders in such circumstances who experience extreme impulses of taking drastic steps in such situations as well and one such unfortunate event happened recently in Hyderabad and not very far from our office.

So, the first step is

Step#1 Stay away from the market

These emotions can be very strong and most likely new for you but trust me every day hundreds of traders go through them. Hence, you are not alone and understand that this will all go away with time.

For some people, it can take a couple of days and for some, it can take a week but eventually, we all come out of that extreme negativity. The pain would still be there but at least the magnitude would have come down.

During this phase, you should stay away from the market.

My advice is to empty your trading account and put the money in some fixed deposit so that you don’t make any impulsive decisions.

Take a break from the market.

Once we start feeling sane again, let’s say a week or so later, time for

Step #2 Accept full responsibility for the losses

When we incur a loss, it’s very easy to blame it on someone or something else because it makes us feel better. People tell me all the time that it is not their fault. It was the guy on TV and they just followed his advice and that they shouldn’t have listened to him and that all these TV pandits are frauds.

Some say that it was not their fault and that his friend or someone on Telegram said it was a sure profit trade and they gave their account to someone else and they incurred a big loss.

Others say that the stock was manipulated and it was their broker’s fault.

Ok, let me be blunt for a second because brutal honesty is what is required at this point.

The guy on TV gave the recommendation but did he also make you greedy to take such a big position?

The Stock may have been manipulated, but did it force you to stay in the trade when the losses were small? If the loss of 10 lakhs was at 20k or 30k at that time, why didn’t you exit at that point?

If the person took the trades on your behalf, who gave him the credentials of your account? You did because he promised to double or even triple your money.

No matter what story we tell ourselves, the fact is that it was our money and so it was our responsibility. Plain and simple. Don’t try to blame someone else.

The bigger problem with not taking responsibility is that you will never learn from the mistake and if you don’t learn anything, forget about recovering from the loss, you will most likely incur another loss and might be even a bigger one the next money.

It’s your money and hence it is your responsibility.

It’s time for honesty

• not with your family, not with anyone else
• but with yourself,
• we get into a habit of lying to ourselves and that’s a very sad situation

So, as much as it hurts, say out loud that I made a mistake and I will never repeat it. It is okay and there is no shame in admitting a mistake because everybody makes a mistake.

Step#3 Avoid getting trapped…

You might ask what kind of trap?

What happens is that after a loss we become very desperate and, in that desperation, a lot of us start searching for so-called “Experts” on the Internet, YouTube, WhatsApp or Telegram to get us out of this misery.

People reach out to us all the time.

Just last week someone approached us and said, I took a loss of 15 lakh rupees and am willing to pay 50% of the recovered amount if you guarantee to recover the losses.

Of course, we said “no” as we don’t entertain such requests.

What do you think that person would have done next? He would have gone to someone else.

Eventually, he would have found someone who would have told him to part with his money.

Once they have your money, well, trust me, you are in much bigger trouble than you previously thought.

One thing that you need to remember is that anyone who can guarantee returns in the stock market is lying to you. Plain and simple. No one, repeat, absolutely no one knows what will happen tomorrow so don’t fool yourself by giving the money to someone to recover your losses.

Remind yourself that you got in this mess and you will get out of it on your own and not look for shortcuts.

Step #4 Do a post mortem of what happened

After a week or so, the emotions come down and reality sets in. That’s the time to be brutally honest with yourself and do a post mortem of what happened and why.

There are 3 reasons why people incur big losses:

They don’t have any strategy

They are just doing trading based on their hunch, gut feeling or some tips.

They don’t have emotional control

Greed and excessive leverage influence them to trade

They don’t have an understanding of risk management

Step #5 Fix the problem

If the problem is a lack of knowledge, fix it. Learn trading the right way and start paper trading. There is no shame in saying I don’t know.

Trading is a skill that needs to be learned and so acquire that skill.

If the problem is emotional control, get a mentor who can handhold you.

If the problem is lack of time, change your timeframe of trading.

If the problem is a compulsion to trade, then you need to take some more serious steps.

The one thing that changed for me as I asked myself, “Am I playing a loser’s game or a winner’s game”? Why is there a big loss? Why is it that I don’t see a big profit? There must be something wrong in the way I am approaching it and that’s when I went towards option selling, algo trading and other improvements in my trading methodology. I wanted a systematic way of trading with no emotions, just rule-based and that gave me the edge that I needed.

So, once you get the edge, follow the strategy and be consistent in your methodology.

Step #6 Forget about recovering the money and focus on making money

What does it mean? There is no recovery of loss as that money is gone.

It’s not like I can ask the market to refund the money. I am not going to get it back and that is certain.

That loss is all done as it has already been incurred and so recovering the loss is the wrong mindset. Because it puts unnecessary pressure on time and amount. If you say that you have to recover 5 lakhs in 1 month, that causes all the problems. Because now you want to make 100% returns in 1 month, you take excessive risks and try to buy a lot of options to hit a lottery. What do you think is going to happen? Similar to other lottery buyers, you will also lose money.

Hence forget about recovering and imagine for a second that the loss did not happen.

In that situation, what would have been the right way to approach the market? You would be eyeing a more reasonable return.

There is a saying in the stock market that “Get rich slowly or get poor quickly- your choice”.

Step # 7: Don’t give up

Almost every successful trader I know has been through at least 1 big loss in the initial phase of their trading careers and most of them have taken at least 4-5 of them. Some of them blew up their accounts several times before they made it, but the common theme among them is that they didn’t give up.

Hence, don’t give up on the stock market. If you had a bad experience with trading and decide to leave trading altogether, that’s fine and understandable, but don’t quit the stock market.

Start with investing. I know it sounds boring but more wealth is created in investing than any other line of business I am aware of.

Again, I would repeat the same saying mentioned earlier – “Get rich slowly or get poor quickly- your choice”

Conclusion

So, guys, as I mentioned in the beginning, I don’t have a magic formula. I only have real-life experience to share and to conclude, I  will say one last thing…

“Tough times never last, but tough people do”