I had an interesting email exchange with a trader a couple of weeks ago, who is struggling with occasional massive losses.

email excerpts

email excerpts

I've had the opportunity to speak to a LOT of traders over the last 8 years of writing these articles. You'd be surprised at how common this problem is.

We discussed several options to investigate further, related to money and risk management, strategy, and of course psychology.

What I wanted to share with you all today though, was just one simple concept that might help, should you ever find yourself suffering from a similar problem.

It's just a slight shift in mindset. It may not be easy. It certainly won't be the full solution. But it could well play a part in overcoming the problem.

Here is what is happening right now:

The current plan

I get it.

Losing sucks. We don't want to lose.

And even more than losing, we don't want to admit we were wrong.

So we fight! We double down on our earlier decision, hoping, wishing and praying that the market will turn. Just enough to get us back to breakeven.

There is a problem though.


You said that yourself!

But it's not working!

Sure, sometimes it will work out just fine, but it's only a matter of time till the market provides another extended drawdown which takes you out of the game.

Your current money and risk management plan provides you with NO EDGE.

And here's a key part of the problem:

Here is part of the reason why...

Let's repeat that for effect!

  • When you FIGHT to get back to breakeven, you're doing so at a time when the market environment is NOT working in your favour.



You're fighting against a strong and persistent trend!

I'm not saying don't fight. But if you're going to fight to get back to breakeven, let's see if we can do it a bit smarter. Let's rethink this concept.

Let's break the current plan into three stages.

The current plan (in stages)

What if we planned our fight differently?

A better plan

Use HOPE as the trigger.

Any time you find yourself HOPING that an extra "unplanned" entry might just help you get out at breakeven… EXIT.

Take some time out to clear your mind.

And resume the fight at a time and place when the market movement and price conditions are IN YOUR FAVOUR.

Don't make this game any harder than it needs to be. Fight to regain losses at a time and place of YOUR CHOOSING.

It's the same challenge; taking a drawdown back to breakeven and maybe even positive territory. But you're doing so when the odds are more in your favour.

And even if four out of five times the market would have got you out at breakeven, had you just entered one more time, ignore it. Remind yourself that averaging down has proven to have NO EDGE. Because the fifth time will not only blow out to a huge loss, but will also take away all these previous gains.

If you're going to fight to regain losses… do so at a time and place of YOUR CHOOSING.

Step aside. Clear your mind. And resume the fight at a time and place when the market movement and price conditions are IN YOUR FAVOUR.

It's just a slight shift in mindset. But it can make a really big difference.

Good luck,

Lance Beggs


PS. A pro-trader will NEVER EVER let a single trade, or a sequence of trades, take them out of the game. Always, before any other goal, your priority is to survive to trade another day. If your current money management plan involves adding to positions just based out of hope and fear, then your money management plan sucks. Fix it. Or you're unlikely to last long in this business.



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  1. It’s also known as “averaging down” or “averaging up”.
    There’s a story about a wheat trader who was sure he was right that wheat was going to fall and he kept averaging up.
    USD$20m, a house, a wife and family later, he was out of the game.
    As you say, a very very quick way to erase an account…

    1. Yes, it doesn’t matter how many times that strategy has worked for someone, they’re only ever one long-extended drawdown away from blowing up and losing everything.

      USD$20m, a house, a wife and family – that is one serious loss.

      As they say, the best loss is always the early loss. Well before it gets out of hand.

  2. The following is an absolutely brilliant comment on this article, which I received by email. I have shared this in the hope that others may also benefit from it.

    – – – – –

    I had a terrible problem with averaging down on losers just like your article this weekend. For the very same reason; i got away with it 9 times out of 10.

    I eventually came up with a solution. First: why was I doing it? – Obviously to avoid having to take a loss.
    So why not just stop out when the loss is very small? – because of fear that it will reverse and I’ll miss out.
    Why will I miss out if it reverses? – because I didn’t have a good plan to re-enter, either in the same direction or reverse.

    Once i was able to see that I was averaging down due to a flaw in my technique, I was able to fix it. Now i trade all-in, all-out. Scaling in, and even scaling out ensures that you will have the largest position size on your worst trades & the smallest position size on your best ones. Absolutely opposite of what it should be.

    Scaling in also caused me to be sloppy with my entries. I would enter to “test the waters”, thinking that if it wasn’t the right entry, I would just add at a better price. Now I choose my entries with a surgeons precision and am ruthless at cutting them off very quickly. All because of one little missing piece.

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