How To Recover From Stock Trading Losses

Suffering from a stock trading loss can be devastating for many traders in stock markets. They not only have an effect on traders financial health but also on their mental health as well. 

The financial losses make a person feel very helpless. According to 2019 report of WHO on suicide, nearly 79% of people globally commit suicide due to financial problems. 

This reason makes it essential to address this issue. In this post, we will inform you about the ways to recover from losses in stock trading. 

What Stock Trading Losses Can One Come Across?  Paper Loss

One can define It as a loss on an investment that is not realised yet. It occurs when the current price of the stock is lower or decreases than the price paid for it. For example, an investor bought Microsoft share for 500 and the next day it decreased to 450. Although the loss did not occur, an investor came under stress. The loss would have happened if the investor sold it for less than what he had paid. 

Loss of Opportunities

This loss occurs when an investor damages a chance to allocate money in a financial investment with high returns. For example, suppose an investor invested Usd 500 in a stock that every trader perceived to give good returns. After the trader invested in stock, its value did not increase for a while.No dividend was paid on the stock. There were no losses on the stock; the investor held it for some time and did not diversify their portfolio. It is lost opportunities. 

Capital Loss

Capital losses are those losses where the stock price decrease in comparison to the initial buying price of the stock. This loss is not realised until the investor sells the stock. When the trader sells the stock and loss occurs, it is realised capital loss. 

Profit Loss

The situation of profit loss occurs when an investor loses a significant stock run-up after they have sold the stock.

How To Recover From Stock Trading Losses Accept responsibility for the loss.

In the stock market, one should invest the money; they can afford to lose. This statement is very true in regards to stock trading. If you have made investments above your capacity or made a wrong decision, then you must take responsibility for it. It would help if you understood why this loss occurred and adjust your trading style accordingly.

Make A Plan for Stock Trading 

If the loss occurred because you did not have a trading plan or system. Then now you must get informed about how to craft a trading plan. The trading plans are essential when you are trading in stock markets. Every trader has their well-crafted trading plan. Having a trading plan will surely help you in getting more money, instead of losing. 

Diversify Your Portfolio

In the stock market diversification of investments is a good idea. You will surely bear a lot of loss if you invest your money in one instrument. If you diversify your stock portfolio, if stock of one price falls, your portfolio will not be adversely affected. It is because price fluctuations are not the same for all the stock. The price fluctuation has different effects on different stocks. 

The market forces, like demand and supply, also affect the prices of stocks. If more people want to buy a stock than sell it, then the price moves up and vice versa. You should not only diversify your portfolio with stocks but invest in other financial instruments as well. You can invest in foreign currencies, derivatives, cryptocurrencies, commodities and indices. 

Learn how to use stop-loss order and leverage smartly.

Stop-loss order is an order that investors place with the broker to buy and sell stocks at a specific price. The stop-loss order is a mechanism that limits investors stock loss.this can help significantly to minimise losses. 

Leverage is a mechanism that allows investors to increase their market exposure. It allows investors to pay less than the full amount of the investment. Traders use credits given by the brokers to pay a percentage of the transaction. 

Take Help of Financial Advisor

The financial advisors are trained and certified professionals who have specialised knowledge about financial trading. They will surely be able to help in making a perfect plan and portfolio for investment in stocks. 

You can take services of a human financial advisor, and also seek Robo advisors for help. The Robo advisors are the software programs that use algorithms to provide financial advisory services. These advisors sometimes prove to be better than traditional advisors. 

Conclusion

The traders that are beginning to trade spend more time on learning how to make a profit from stock trading. They do not devote more time in learning about risk management and loss recovery. If you look on the internet, there are more articles on how to make big money. But fewer articles on loss recovery. As a last piece of advice, we would like to say that one should learn about risk management also. The COVID-19 pandemic has also increased, its importance even further. 

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