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• 1 media/forex7.jpg media/forex5.jpg 2018-04-06T11:41:48-07:00 How to Rebuild Your Portfolio After Huge Losses 5 5 Tips By a Professional Economist image_header 2020-10-28T06:11:18-07:00 This article is being written based on not only personal experience, but also experience of seeing this all the time in the industry. We have all been there, speculating on a penny stock that keeps dropping then the old "average down" in hopes that it will run 2-300%. The next thing you know, your trading account has been wiped out 20% or more. How did this happen? What mistakes did I make? How do I get it all back?

   

  I have outlined a few steps below that have worked for me in tremulous times and some ideas that can help you get your portfolio back to looking healthy again.

  #1 - Stop Trading

  There are no definitive answers to the questions above but there are some solutions. As advised by Thinkmarkets, the last thing you would want to do is panic. Take a step back and cease trading until you can get your head on straight. Suffering huge losses in unnerving and can cause you continue racking up the losses as you start making fast rash decision that will not only effect you but your portfolio as well. 
  

  #2 - Reevaluate the Situation

  Once you have stopped trading, go through your transaction history and start evaluating your trades. Try to pinpoint the mistakes you made and what went wrong. Did you forget to set a stop loss? Did you close your position out too soon? Did you put up to much capital? You must identify what you did wrong, if you cannot locate where you went wrong, seek help form an adviser or from your brokerage firm. Many offer free help seminars these days.

  #3- Have a Plan of Action

  Ok, so you lost significant gains and now you looked over the transactions and have identified why you took that huge hit. The next step would be to have a plan of action. Think about if you want to continue trading or if you want to sit in cash. Do you need a time frame, a "cooling off" period? What will you do to combat losses? What happens if you suffer losses again? All of these should be questions you ask yourself before you step back into the game.

  #4 - Start Off Slowly

  If you decide that would want to get back in the game and start recouping some of those losses and rebuildi your portfolio, start off slowly. Don't just jump back into a huge position right away, especially if you cannot afford to take any more losses. Starting off slowly will help you get your swagger back and start making better, rational trades again.
  

  #5 - Win the Small Battles

  You don't have to hit a home run every time you step up to the plate. Taking small gains here and there is a great way to boost your confidence. Start getting back in the game and rebuilding your portfolio. This strategy allows you to see what works and what doesn't when it comes to your own investing styles and habits.

  As discussed, here are the 5 step to rebuilding your portfolio:

  • Stop trading - Giver yourself time to cool off
  • Reevaluate the situation - Go over your transactions and see what mistakes you made
  • Have a plan of action - Decide what you want to do next and map it out
  • Start off slowly - Start with small trades
  • Win the small battles - Take profits, write down and analyze what you are doing right

  Once you get to step 5, you can analyze your transactions and start seeing what works for you. If you are still suffering losses, then you might be making to many speculative risks.

  Have a professional analyze your trading patterns and see if they are right for you.

  Trading on Margin

  I would never recommend anyone, from the most novice to serious day trader ever trade on margin. Whenever you trade on margin, your are risking funds that you do not have. Markets can move one way or another in a heartbeat, and you do not want to be left holding the bag when your broker comes through with a margin call.

  In conclusion, these are just a few steps that I have learned to take after taking heavy losses from placing bad trades in my portfolio. The most important for me is taking a step back and re-evaluating the situation. This will give you time to not only get your head right, but also decide if trading is right for you. I have had trader friends that have taken months or years off from trading only to get back in the game and become successful.