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If you're a trader or investor, you've likely taken a loss at some point, whether it's a realized loss, meaning you actually sold or an unrealized loss, which you haven't sold yet and you are still holding. So this is how to handle losses and what you can do going forward and also a little bit of psychology behind the losses. So the psychology behind taking losses, it's no secret that departing from your money is an awful feeling. I'm sure a lot of you are familiar with that feeling. One of the biggest reasons for this feeling is called loss aversion. So loss aversion refers to a phenomenon where a real or potential loss is perceived by individuals as psychologically or emotionally more severe than an equivalent gain. For instance, the pain of losing $100 is often far greater than the joy gained in finding the same amount. And Aaron Brun, a lecturer at Australian National University, says the effects of financial loss are similar to the grief one experiences when one loses a loved one. And you're not alone if you felt this way before, it's actually very common and it's only natural. In fact, there was a study done by the same lecturer shortly after the great financial crisis. So Brun studied investors whose money evaporated when a major Australian financial planning company collapsed in 2009. He found that people who lost their savings experienced shock, fear, regret, anger, their personal relationships deteriorated, their health suffered, and they found it very hard to move on. Basically multiple stages of grief. So it is very similar to the feeling of losing a loved one or even a pet, especially if you lose a large amount. And if you want to go read more on this, you can check out these sources, I might even put the PDF in the description. You can go check out these links. They're actually pretty good reads. So in order to move forward, we need to find the behaviors that led to the loss and usually they are toxic behaviors and they're not good for you. So there is a way to avoid the awful feelings of a major financial loss, but it will require a little bit of work. Trading and investing is mostly psychological. This means you will need to change behaviors and figure out where you went wrong and how to change the behavior going forward. And these are some common mistakes that people make. Number one, going too large on a single position or putting all their eggs in one basket, this means you're putting too much money into just one investment or you are going all in. Number two, not having a plan or risk limit in place. You need a stop loss. You need a plan, use technical analysis, use fundamental analysis. If your company or your technicals are not lining up fundamentally or technically with your expectations, you might need to cut your loss. Number three, following the classic Hopium strategy. This is just holding and hoping you have no plan, no strategy. You just hope it comes back up. This one kills a lot of people. Number four, putting more money into a losing position instead of cutting your loss and reevaluating. It's called sunk cost fallacy by definition. Averaging down is a toxic behavior. Number five, revenge trading after suffering a loss or multiple. You want to make that money back so bad that it starts making you make impulse decisions that don't make any sense. You just start chasing whatever you see because you want that money back. You can't do that. It's a bad habit and it can hurt you. And number six, the need to make money. And this is usually from social status pressure, piling debt, financial struggle, etc. There's a lot of reasons people need to make money, quote unquote. This is also a toxic behavior. You can't feel the need to make money focus on the process. If you focus on the process behind trading, the money will follow. You need to have a plan. You need to have a system. You need to focus on the process. So fixing your behavior and moving forward. Now that we've identified some toxic behaviors or some common ones, at least. That's not nearly all the toxic behaviors that we have as humans, as traders, as investors. There's so much more. But now that we've identified some, we can try to figure out a plan to move forward, what you can do moving forward. Now that you've ate this loss, maybe you're in an unrealized loss and you haven't taken the loss yet. These are some things you can do moving forward to make you a better trader, a better person, a better thinker. So we need to normalize taking losses. First of all, taking a loss is normal. There's no way to 100% avoid it. Even small business owners go through periods of losses. And there's a correct way to go about it. Compared to traditional gambling, trading and investing can give you much more control of your own outcome in terms of money management. So you can control your risk, you can stop out whenever you want. With regular gambling, you put all your money up and you either win or you don't. With trading, you can put your money up and you can stop out. You can hold as long as you want and profit and you control your outcome. So compared to traditional gambling, by definition, this is giving you a little bit more control of your own outcome. And here are some rules to abide by when you're on a cold streak or just suffered a big loss. Number one, have your plan and risk limit already set in place before you enter. This will alleviate some pressure and fear you have of entering a position. Most use technical analysis to create a plan with an entry, a stop and a target. All based off support and resistance levels. May use trend lines, moving averages. So all types of stuff you can use to create a plan, a visual plan, something you can see and act on. Number two, only risk two to five percent of your total capital per position with five percent being very aggressive. So the industry standard is one to two percent. This two to five percent rule is very aggressive. I would recommend keeping it as low as possible for psychological purposes. If you have more of a risk appetite, two to five percent is good. But if you are scared to lose money and you really just can't handle any drawdown, one to two percent is the industry standard. This is what millionaires, billionaires, they are all using. Well, most of them, at least people with a lot of money can still blow up. They can still take huge losses. So industry standard, one to two percent. And if you have a $10,000 account, this would give you two hundred to five hundred dollars worth of risk. If you reach this threshold on a position, you should be cutting your loss or at least thinking about it. So $10,000, giving you two hundred to five hundred dollars worth of risk. If you end up going on a cold streak or you feel that you are getting too emotional, it's time to knock back down your size. This is a great plan if you're messing up. This means going back to trading the minimal amount of shares or options, contracts or futures, whatever you trade until you can prove to yourself that you found consistency again. I do this all the time. I have cold streaks. I take losses still. If I feel like I'm trading like shit, I go back to small size. I'll trade one or two contracts at a time. If I don't like how the market looks, I take one or two contracts at a time. It's a little bit of discipline and you need to follow it. Going back to small size will help you focus more on the process and less about the money, which is very important. You want to focus on the process, less about the money. If you focus on the process, the money will follow. And here are some additional changes you can make to close out. These aren't all of the additional changes you can make, but here are some. You don't have to quit the market completely. If you're worn out, there is still hope. So don't feel like shit. Don't be sad. Don't feel sorry for yourself. You can switch to a different product. Example, you're losing too much money trading short term options. You might think of switching to long term shares and stick to the classic buy and hold strategy. Most of America just buys and holds stocks. I think 58 percent of households hold stocks right now. The stock market appreciates over time historically. So long term holders basically always win, despite any big dips. The financial crisis in 2008, it came right back up and especially we have the Federal Reserve, which are kind of acting as a backstop to any economic downturn and they come in and save the day. It might create some moral hazard. It might create bad risk taking in Wall Street and individual traders. People might take ridiculous risk because they know the Fed will bail them out. But the stock market still goes up over time. That's the point. You can also evaluate the companies you're trading or investing in. Unprofitable companies carry more risk and have much more volatility. Higher volatility names in general will also carry much more drawdown risk. Unprofitable or not. Large caps like Nvidia, Tesla, when they pull back, they pull back big. They have higher volatility, but they're still profitable. They're still some of the biggest names in the world. You got to check the volatility. See how it's trading? Check the chart. You can check the implied volatility and the options. If it's trading above 30 to 50 percent, it's usually a little bit higher for volatility. And last but not least, learn technical analysis. This is better than guessing on direction. And it actually works very well. Use basic support and resistance levels for entry, stop and target. Make sure to follow the plan and you create a plan visually using technical analysis, whatever indicator you're using, classic support and res, trend lines, whatever you're using, supply and demand zones. It's all visual and you base your plan off that. If you buy at one level, you keep a stop slightly under it. You have your target about one to one away from your entry. So I hope this was helpful, guys. This is just a little lecture real quick. It needs to be talked about. Losses are normal. And if you're feeling this way, everybody's felt that way at some point. Don't feel like you're alone. If you're having bad thoughts, make sure to reach out to somebody. You could talk to me even. Markets are crazy, you know? And if you're taking too much risk, it can really bring some bad feelings if you're wrong. So just make sure you're trading carefully. Read this back if you have to when you're feeling like shit. Or maybe you just want to get better. I'll put this PDF in the description. You can come back and read on it. I have a little reminder because these are just basics, guys. I mean, this isn't rocket science. It's basically common sense when it comes to managing risk. Just don't go too big. You make some changes. You find your behaviors and you move forward. Losses are normal. There is such thing as a correct loss or a proper loss. When you're managing risk correctly, that is a proper loss. Following one to two percent total risk, following two to five percent total risk with five percent being aggressive. That's still a plan and you're not blowing up your account in one trade or you're not blowing up half of your account in one trade. You're following some rules and it's a good step forward. And it takes a little bit of discipline. You might have to fix some things in your outside trading life like fixing your sleep, working out more. If you have to, whatever you got to do to fix your mental because this game is all mental, but there is hope. So don't feel like there isn't if you're suffering a bad loss or you feel like you can't get anywhere. Just don't feel that pressure, guys. Just try to focus on the process. Try to apply some of these things we went over today. And I guarantee you you'll feel so much better now that you're actually implementing a plan and you're starting to change your behaviors a little bit. That alone will make you feel a little bit better and a little bit more optimistic about the future and your trading. So I love you guys. Make sure you like, comment and subscribe to our Extra Trades YouTube channel. I'll try to get some more lectures out in the future. I usually just do weekly trade ideas lists. I get kind of tired of making those. So I really enjoy making educational videos. So I love you guys. I'm going to get this chopped up, sent out, edited, all that good stuff. So love you guys. I'm out.