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How to Deal With Penny Stock Losses

Loss is a topic that everyone tries to avoid, but let's face it, penny stocks are risky and losses are unavoidable. There will be times that you are on a losing streak and may end up with a string of losses. What you do during this time is what makes you a successful trader.

The Big Mistake

Many beginner traders often increase their position sizes when they lose money and try to make the money they have just lost as quickly as possible. While others double down on their losing positions trying to make their losses look smaller in terms of percentage so that they can get out of a trade break even. Remember, you can always make the money back on another stock. This is not the right mindset and this kind of thinking is very dangerous; it could lead to disasters and ruin one's portfolio. The market doesn't owe anyone any money and it does not know that you have lost money. The more you want to make your money back, the more you would end up losing because you will not be able to think logically and not be able to trade with discipline. Remember, discipline is one of the most important ingredients in trading success. Discipline and a winning attitude are more important than any trading strategy or chart pattern that you may have. Read the top 10 penny stock mistakes that traders often make.

How to Deal With Losses?

So how do you deal with losses? The best thing to do would be to take a break from trading or reduce your position size. If you are a day trader, try to step away from your screen so that you can have a break to think through. Watching the screen all day long is not going to make a stock go up faster when you are on a losing streak. If you are a swing trader, try to take a few days or even a few weeks off from the market depending on how bad your losses were, and come back afresh. You can set a maximum percentage loss for each month. Once the maximum loss is hit, you stop trading for the rest of the month and can only resume trading the following month. You can use this time off to analyze your trade, study the market, improve your trading, meditate to calm your mind, or you can just go to the beach and relax. Personally, I've found meditation to be quite useful when it comes to trading. It helps me relax and think logically after big losses.

How to Manage Your Position Sizes?

There are two ways to manage your position sizes.
  • Increase position size when you are winning
  • Set bigger positions for your best chart patterns, and smaller positions for patterns that are marginally profitable.

Increase Position Size When You are Winning

You can increase your position size when you are on a winning streak. Trading has momentum, when a trader is winning, it seems luck is on his side and every trade he takes turns into a profit. Therefore, you can increase your position sizes when you are doing well and reduce them when you are losing. However, do not be overconfident when you are winning and start to take random trades. Oftentimes, big losses come right after big wins. Only trade when your pattern tells you to do so and backtest your patterns.

Set Bigger Positions For Your Best Pattern

If you have a few profitable patterns that you work with. Put more money on the chart patterns that work the best. If you don't have any profitable pattern yet, you shouldn't be trading at all. Read the following articles to learn how to find a winning pattern. How to find a winning chart pattern Best Penny Stock Chart Patterns You should find and test how often your patterns occur and their winning rate. You want to set bigger positions for the best patterns that have an 80% or higher winning rate. Bet smaller for the patterns that don't work as well, but still profitable.


I have repeated this message many times, and I will say it again here. The market will always be here. Only go back to trading when you are ready. When your mind is not ready, you will not make good trading decisions. If one month is not enough for you to recover from your losses, take a few months off the market and come back strong.

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