Every trader loses money sometimes. Even the best traders in the world have losing trades. The difference between successful traders and everyone else is how they manage those losses.
"The elements of good trading are: cutting losses, cutting losses, and cutting losses."
Ed Seykota, legendary trader
Why Losses Are Part of Trading
No strategy wins 100% of the time. A good win rate for most strategies is 50% to 70%. That means you will have losing trades. Many of them. This is normal.
The goal is not to avoid all losses. The goal is to make sure your winners are bigger than your losers.
The Biggest Mistake: Holding Losers Too Long
Most traders do the opposite of what they should. They hold losing trades hoping they will come back, and sell winning trades too early because they are scared to lose their profit.
This is backward. You should cut losers quickly and let winners run.
Simple rule: If you would not enter the trade at today's price, you should not be in it. Ask yourself: "If I had no position, would I buy this right now?" If the answer is no, close the trade.
How to Set a Stop Loss
A stop loss is a price where you will exit the trade no matter what. Here are some common ways to set one:
- Percentage based: Exit if the trade loses 5% or 10%
- Dollar based: Exit if you lose $100 or $200
- Technical based: Exit if price breaks below support
- Time based: Exit if the trade does not work within X days
For options, a common rule is to close the trade if the loss reaches 2x the credit received (for credit spreads) or 50% of the premium paid (for long options).
Position Sizing: Your First Line of Defense
The best way to manage losses is to size your positions properly from the start.
Never risk more than 1% to 2% of your account on a single trade. If you have a $10,000 account, your maximum loss on any trade should be $100 to $200.
This way, even a string of 10 losing trades will not blow up your account.
The Mental Side of Losses
Losses hurt. Your brain is wired to feel losses more strongly than gains. A $100 loss feels worse than a $100 win feels good. This is called loss aversion.
To handle this:
- Accept that losses are normal: They are not failures, they are part of the process.
- Focus on the process, not the outcome: Did you follow your rules? That is what matters.
- Take breaks after big losses: Do not revenge trade. Walk away.
- Review, do not regret: Learn from the loss, then move on.
What to Do After a Loss
- Write it down: Record what happened, why you entered, and why you lost.
- Ask what you learned: Was it a good trade that just did not work out? Or did you make a mistake?
- Do not change your strategy after one loss: Strategies have losing streaks. Stick to your plan.
- Take a break if needed: If you are emotional, stop trading for the day.
Red Flags: When Losses Are a Problem
- Losing trades are much bigger than winning trades
- You are adding to losing positions (averaging down)
- You are moving your stop loss to avoid taking the loss
- You feel sick when you see your P/L
- You are hiding trades from family or friends
If you see these patterns, take a break and review your approach.
See Your Win/Loss Patterns
Pro Trader Dashboard shows your average winner vs average loser, win rate, and more. Find out if your losses are under control.
Summary
Losing trades are normal. What matters is how you handle them. Set stop losses, size your positions properly, and cut losers quickly. Review every loss to learn, but do not beat yourself up. The best traders are not the ones who never lose. They are the ones who manage their losses well.
Learn more about tracking your trades or read our guide for beginners.