Cryptocurrency trading has become popular over the last decade, quickly becoming a favorite financial activity for millions of investors globally. Although it has vast potential for profitability, it also involves the inherent possibility of hitting a loss or a drawdown on trading capital for several reasons. If you are in such a position, this article explores practical tips to help you recover from losses and regain your winning streak.
Understanding Cryptocurrency Trading Losses
The crypto market, like other financial markets, brings traders together to buy, sell, or exchange one coin for another (or for fiat) to make profits. There are two types of traders: those holding coins for long-term gains and those trading the daily markets.
Holders often buy many units of a coin at low prices and wait for the price to increase before selling off. But if the coin’s price falls in value, they may experience losses. Daily traders actively trade pairs of cryptocurrencies, simultaneously buying one coin and selling the other with each entry.
If you trade crypto, you understand the massive potential that trading provides. A small 5% price change can bank you a lot of profits depending on your trading capital. However, you are also aware of the losses that could occur if prices move in the opposite direction to your prediction.
Both groups of traders experience losses, but bouncing back from your losses is possible when you apply the right strategies. Here are practical tips to help you:
Fix Your Psychology
Losses may significantly impact your trading psychology, and that’s why you must master your emotions and learn to take profits and drawdowns in your stride. The first thing to do is to accept the trading results as a part of your trading journey. Never dwell on the pain but see it as a process. You can also take a short break from trading to clear your head. Do other things that give you pleasure and ensure you return to optimal mental strength when returning to face the market.
Never chase trades when trying to recover from drawdowns. A popular saying in the industry is that you should allow the market to come to you, so you trade what you see. There are always opportunities to enter profitable trades, so be patient with the market and wait for it to fall into your setup.
Analyze Your Lost Trades
Knowing where and why the market went against you can help you understand your strategy better and find the edge you need to recover. Start by analyzing your trade in the light of your strategy and trading rules, as going against your rules may cause you to lose your trade. Check for the impact of news events on the market to understand how they influenced your trade outcomes.
This is also important because you may not be liable for losing trades. Your setups and analyses may be okay, but other factors may swing the market against you. Professional and experienced traders know this, so they aim for net profitability over being right on each trade.
Your profit and loss (PnL) are calculated according to the total size of your trade position. Although you’d immediately see how much you made or lost, the process helps you better understand your future account management.
Evaluate Your Strategy, Rebuild Confidence
If you’ve identified your strategy as a significant reason for your loss, consider evaluating it and adjusting where necessary. It’s essential to point out that your strategy might not be the issue; there’s no trading strategy that is 100% profitable due to market changes. You should only adjust or change your strategy if it doesn’t fit your trading style or has a low profitability rate.
Getting a drawdown may have you questioning your strategy and trading skills. This is a normal challenge, but you must rise above it by improving through practice. Improving your confidence will help you recover your losses and become profitable again.
Take Advantage of Tax Relief
All US-based crypto trades must file crypto taxes; the IRS allows traders to claim tax relief when they sell crypto and other digital assets at a loss. If you trade, especially in the long term, this option can help mitigate your loss so you can recover your capital faster. File your taxes and indicate your crypto losses to claim relief against other income. You can also do this whether or not you were a resident in your country when selling your crypto.
Take The Process Gradually
Rebuilding your capital after a drawdown may take longer than you estimate, so take the process gradually. You’ll find plenty of chances to trade, but ensure strict risk management to protect your capital. Calculate your trades and ensure you only use a small percentage of your capital per trade. You can then increase your trading amount as you grow your account. Proper risk management is still the best way to recover from a loss and return to winning.
Change Your Trading Platform If Necessary
Trading platforms play essential roles in trading profitability since they provide access to the crypto market and act as market makers. You might experience losses if your trading platform often experiences technical problems, such as downtimes, slow execution, and weak security features. Switch to a trusted and reputable crypto trading platform that provides stability, security, and excellent trading conditions.
Don’t Let Losses Get You Down
Crypto trading losses are a part of the process and should not cause unnecessary panic when adequately managed. Recovering from losses begins with having a positive mindset and ensuring you are in the right frame of mind. Practice proper risk management and adjust your strategy where necessary.
Remember to go slowly and gradually recover your funds through crypto trading. Portfolio diversification will also help increase your profit potential while reducing your net drawdown. Finally, keep learning and interacting with other traders to get fresh angles on crypto trading.
