 Yikes. Oh no. What happened? I thought this was a sure bet. I thought this was going to be a great trade. Oh no. Oh no. Heavy losses. Your account is all red. Everything looks terrible. What do you do? We're going to talk a little bit today about what to do when you have a losing portfolio. When things are just not going your way and you don't know what to do. It happens to all of us. Every trader has off weeks or months where it just looks like nothing's working. So let's talk about how do you deal with those losses? What do you do? What are some steps? I've got three ideas for you that we'll talk about today. So let's start with, first off, how'd you get there? Because you should be setting stop losses. If you're not setting stop losses, you're not going to be able to avoid some of these scenarios. But you set a stop loss, that's not always foolproof. You could have had a massive dip after hours or pre-market where the stop loss didn't trigger. Or maybe you just lost track of the trade. You entered the stop loss wrong. It happens to all of us. So don't get too stressed about it. But let's say you're in the hole. You missed your off ramp. You're stuck with your bag holding some red tickers or stuff across the sector like the sector that I covered cannabis. What do you do? How do you get out of that hole? So there's three things that I think are the most expedient ways to get out of a loss or the kind of three methods. So let's go over them one by one. First off, you can cut your losses. That is what most traders do. And it's a good practice to be consistent about it. Stick with what percentage you're willing to hold on to before you're just going to cut it because that's just your limit. So a lot of traders do 10% or 20%. If it hits 20%, like no matter what they cut it. It's good to be consistent with that rule and not keep changing your threshold. So if you're a 10% trader, anything that hits 10%, you're going to cut it unless you see a clear sign that it's going to rebound soon or say 20%. You market as a loss. Losses are not always bad. You can take them as tax deductions. It counts against your capital gains so we can eat into that at tax time. But I think the biggest advantage to just cutting your losses and moving on is that it takes away the mental energy that it drains when you see that loss in your account all the time. You're thinking about it. You're thinking, how am I going to get out of this hole? It's dragging down the rest of my account. Just having it there in front of you all the time when you hold on to a loss is draining and it takes away your energy and it makes you feel bad. So think about that when you're considering cutting your losses is that it's going to make you feel free not to have that to deal with anymore. And it frees up capital. That's the other thing that a lot of people forget when they hold on to losses is that's money tied up into a bad trade that you could take out and put into a better trade. So think about that. That's really important is that you were tying up funds when you hold on to losses for a long time. So that's the first one. Cutting your losses. Second, averaging down. This one's really tricky and a lot of new traders get into the habit of doing this. I am guilty of this. I've averaged down a lot early in my trading career and it's a habit that I had to break because I found I was doing it all the time. What this means is when you buy a stock or option and then it goes down to a certain level, you buy it again, you add to your holdings in order to bring the average price of it down. Now the goal of this, it's also called DCA. That's another way to refer to it, is you're hoping it's going to go back up and then you're going to be able to sell it at break even at a lower level than what your original loss was. So that's sort of the concept is you want to get to a break even level or maybe even profit from that big dip and then write it back up. The problem with averaging down though is that if you get to rely on this too much, you're putting more money into a losing trade. So you may lose even more than what you originally did. You already had a loss. You already had a bad trade and you're dumping more money into it instead of looking for other opportunities for a better trade. That's why averaging down is dangerous and that's why I don't advise doing it more than once. In the cannabis sector, we see these huge ramp ups and then a huge dip. Sometimes that huge dip is a good place to average down if you got in a little bit higher. But if you make a habit of this, it's really dangerous because you're just pouring more money into bad trades. You're stuck with these trades and it's very hard to get out of them once you get into them. And it's especially dangerous with options if you have a short expiration date because now you've averaged down, you're stuck with this and it could go to zero. You could lose everything. So the worst trades I've ever had have been trades on options where I averaged down. So beware of that. How does averaging down actually work though? If you're still unclear on that, I'm going to show you a quick example on the chart of how that would work and how you would do that. So let's look at that real quick. So I'm going to show you here on the chart what averaging down looks like. Let's say this is HYFM hydrofoam. Let's say you entered here. You thought you were seeing a breakout. So you got in here at about, let's say, 163, 164. Let's say this is where you entered the trade. You thought, oh, it's taking off. I'm getting in at 163. But no, it went the other way. Your big loss is down this way. Not good. So you're holding onto this losing trade. You're thinking you might want to average down. You think you might want to average down around here because you see a support level and then no, it goes even further down the next day. Oh no, it's already down here to 150 area. So you could say average down here at 150. And what that would do is it would bring your average cost to around the 155, 156 level. You bought it at 163. You're averaging at 150. You're going to end up, depending on the volume of how much you're buying, probably around here. So now, if you're hoping for a win, if you're hoping to get back above your average price, it only has to get to this level not way up here. That's how averaging down works. So let's say it went throughout the day and toward close. It did go up here. This is where you'd probably want to sell. You'd want to get rid of it, get that gain, get that win. So that is the case where averaging down would have worked. If you got in here, you averaged down here and you ended up with a slight win. You're not going to get these profits, but you got this profit. So that is in a nutshell how averaging down works, but it only works if it does rebound. If it doesn't, if it goes down this way, you are stuck with an even worse losing trade with even more capital put into your average down. So that's how averaging down works. So that's the second strategy, averaging down. Third strategy, write it out, hold on. You can try to wait out the market and see what happens. Again, very dangerous. You're holding on to capital that you could be using for something else. But if you're in a market that's cyclical, cannabis can be cyclical, not really all the time, tech can be very cyclical. If you're confident that we're just in a lull, if we're in a kind of downturn that's going to go back up next year, you could hold on to those losses. You could ride them into next year. It won't affect your taxes if you hold on to it into the next year. And what may happen is you may end up profiting or breaking even. Again, this is a dangerous strategy and we call it bag holding. When you hold on to losing trades for a long time, you're holding the bag. That's where that phrase comes from. So you don't want to have a portfolio that's full of bag holdings. It's just full of all of these losses. This entire red account where everything you have is a losing trade. You want to take partial profits when stuff goes over into the green. You don't want to be holding on to all these. So that's one way to write things out. If you have a lot of patience and you're confident and you have other capital freed up to do other trades, just holding on for the ride and trying to wait until things rebound. That is another strategy. We have been in a real bear market the last year at least. And I think I see a lot of traders holding on to getting into Tesla right now, even if they're losing and waiting for that to jump back up. So that is a strategy. That is something you could do is just be patient, hold on. But as we've seen in the cannabis sector, sometimes you're going to be holding on for a long time because things can always get worse. So beware when you do this because you may think you're at the bottom, but there's always another bottom below that, especially in volatile sectors like the one that I dabble in. So those are your three strategies for what to do when you've got massive losses, when you're looking at a red portfolio and you don't know what to do. I hope this has been helpful. I'm Omar G on Xtrades. I mostly am in the main stocks chat channel talking about cannabis stocks every day, posting watchlists. Join us, like, subscribe this YouTube video and join us on social media on Instagram and Twitter. I will see you around. Thanks guys. Have a great, great trading season. And don't hold on to all those losses. It's bad, bad practice. Take care, everybody.