A Trader’s 5-Step Recovery

re-cov-er-y (noun) – the regaining of something lost or taken away; restoration to a former or better condition; the extraction of useful substances from waste.

Traders have to go through recovery on almost an ongoing basis. Sometimes it’s from a paper-cut-sized hit to the account, while other times it involves coming back from an amputation of sorts – whether it be a major drawdown to actual or emotional capital.

Either way, without the ability to recover, you’re done. (Obvious alert: that’s no place to be).

There are steps to recovery which should be taken, and I want to discuss some of them. By no means is this an exhaustive list, so please add your own in the comments, but here are a few which I think are necessary on the (sometimes long) road back.

Admit it. Face up to what it is. Call it a slump, call it shattered confidence, call it a big scary market monster. Whatever “it” is, you have to get it on the table so you can deal with it.

Seek help. Maybe you shouldn’t go it alone. Without some accountability, it’s easy to relapse. Find a mentor or some coaching to get you back on track, and add some skills to your repertoire. The fact of the matter is that left to your own abilities as they currently stand, you may very well be facing a similar situation again.

Take inventory. Take an inventory of what’s left of your capital, both in terms of cash and confidence. It may be that you simply don’t have enough left to consider a comeback right away, so perhaps you incubate for awhile and prepare in other ways for your eventual return. Or perhaps you assess your situation and realize you have more than enough to start the process.

Get uncomfortably familiar with the cause. What was it that put you in need of recovery to begin with? Overconfidence? Lack of respect for the market? A series of small mistakes which compounded your problems? Understanding the root cause of your wounds, even if painful, will help you prevent it from happening again in the future. After all, you’ve already paid the tuition, you might as well get the lesson.

Get back in the saddle. The last step in the sequence is to return to trading and begin rebuilding. Start thinking about what that’s going to look like for you and how you’ll avoid the same pitfalls which got you this time around. Visualize yourself back in the routine again, making plays, staying disciplined, and having success.

** What are some steps you think are necessary to begin the healing process following a big trading loss?

Trade Like a Bandit!

Jeff