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It doesn’t matter how experienced you are, how much research you do, or how strong a setup appears. Eventually, every trader takes some losses.
What separates successful traders from everyone else isn’t their ability to avoid losses altogether. It’s their ability to prevent an ordinary loss from turning into something much bigger.
Unfortunately, that’s where many traders get stuck.
A position moves against them and reaches the level where they’d originally planned to exit. But rather than closing the trade, they decide to give it a little room. They move their stop or remove it altogether, figuring they’ll get out of the trade once the market reverses.
Or if they do close the position, they may be tempted to jump back in immediately. Not because a fresh setup has appeared, but because they’re determined to recover the money they just lost.
While each of these decisions can seem reasonable at the time, they can turn a routine loss into something that could seriously damage their trading account.
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The problem occurs when a trader’s underlying objective has changed.
Originally, they entered because of a strong technical setup, and they believed the trade offered an attractive risk/reward profile. But once the position moves heavily against them, the goal changes.
They simply want to get back to breakeven.
But that’s not a trading strategy. It’s an emotional objective. Traders can become so focused on their entry price that they give that level a meaning it doesn’t deserve. In truth, the market neither knows nor cares where they entered.
Loss aversion also starts to take hold. Because accepting a loss is painful, traders may look for a reason to postpone it. To them, accepting the loss can feel like admitting they were wrong.
So they hold on in the hope that a favorable economic release, earnings announcement, or broader market rebound will put everything right.
Sometimes the market does turn around and hand them a “get out of jail” card. But this can reward bad behavior. It can also falsely teach them that ignoring their stop loss was the right decision.
Sooner or later, a trade won’t bounce back. And that’s when losses can accelerate.
Over more than 40 years in the markets, I’ve learned to take a loss and move on. Trading is a business, so I recommend thinking of a loss as an operating expense.
It should be no different from any other cost involved in running a business. You have to accept it and simply move on.
Before entering a trade, you should know exactly how much you’re prepared to lose and what price action would break the setup – for example, a stock falling below support.
If you trade options, you need to decide whether adding, adjusting, or rolling is genuinely part of your strategy.
Importantly, those decisions need to be made while you’re objective – not after a position has started moving against you and emotion has taken control.
If the setup gets invalidated, close the trade. That doesn’t mean you can’t enter again later – but only if a new high-quality setup develops, not because of your desire to win back lost funds.
Taking a loss protects your capital. It also protects your confidence, discipline, and ability to recognize the next genuine opportunity. Taking a big hit saps that confidence and can have you second-guessing yourself, leading to missed opportunities ahead.
One bad trade rarely destroys a trader.
That first loss might feel expensive at the time. But compared with what can happen if you refuse to accept it, it’s often the cheapest loss you’ll ever take.
Happy Trading,
Larry Benedict
Editor, Trading With Larry Benedict
Reading Trading With Larry Benedict will allow you to take a look into the mind of one of the market’s greatest traders. You’ll be able to recognize and take advantage of trends in the market in no time.
