It all depends on how you define a “big loss”? One trader’s big loss could be equivalent to days worth of commissions to another trader. So it is relative in how you look at it and perceive it within the size of your trading account and trades. I’ll define it as losing a month of previous gains or more, or 50%+ of your account in a short time frame including a single trade.
After taking a loss of such magnitude it feels normal to question your judgment, ability to trade, confidence level, and overall belief in whether you could possibly recover. The idea of placing the next trade and starting the climb so to speak to regain those profits you just lost, seems like a task you are ill-prepared for. You just sink mentally for a day, perhaps longer.
In time, you try and rationalize the decisions that should’ve been made, question the ones that worry, commit to not repeating them again. Sometimes, you repeat them again, sometimes you catch yourself.
After a big loss, step back. Don’t ask “what do I need to do to make back what I lost?” That is more often a path to more losses or making decisions that are full of more risk.
Ask yourself what did you learn from it.
Write down those thoughts and what went wrong.
No stop loss, too much size, biased against the trend, added to the trade, didn’t wait for a key level, etc.
There should always be a mistake you discover, something against your better judgment.
If you stay in this game long enough, eventually you learn. I have learned the best way for me is slow, steady, consistent, repeatable trading strategies that are profitable and minimize risk are where I trade most comfortably and with more control and discipline.
You have to have that edge that provides you those things.
I believe the best thing to adopt is a focus on minimizing the amount of time you are wrong.
Remember when you are losing money is when you are wrong, so don’t stay stuck losing money. Get out of a losing trade. Always start a trade with a smaller size and add when it is working, not when it’s not working, such as trying to average up/or down your cost basis because you cannot believe the stock won’t go in your direction soon.
Don’t be caught in that foolish thinking that you are right and the market is wrong, and you will prove it by adding more and more size, while still on the wrong side of the trade.
The smaller and more infrequent your losses become, the more consistent your gains, regardless of size, add up over time.
Today doesn’t have to be your biggest and best day. It doesn’t have to outdo yesterday. It just needs to be the same day where you wait and execute on your best setups and follow your plan.
Do that and you will succeed. It is mostly when you deviate from something within that framework where you let your mistakes turn into big losses.