Written by A.J. Brown

How to Bounce Back After a Setback

Bounce Back After SetbackLou writes: “How do you bounce back after a setback? I was up huge my first year of trading only to be overconfident and give it back… how do you bounce back??”

Great question, Lou. Bouncing back after taking big losses in option trading is not always easy. But with patience and a commitment to succeed, you can become a better trader than you were before.

Here are some simple steps I recommend you follow to get back in the game and profitable:

Step #1: Determine why you lost money.

First, you need to reflect on why you lost money in the first place.

In Lou’s case, it sounds like he became overconfident. Is that the reason he lost so much money? Yes, kind of.

But what did the overconfidence cause Lou to do? Did he start using his gut to pick trades, bypassing his normal selection criteria? Did he violate his money management rules, thereby losing 40% of his entire account on a single trade?

You see, overconfidence may be the first cause of Lou’s problems, but overconfidence by itself didn’t actually cause him to lose money. If you follow all your trading rules, you can still be profitable — regardless of how you’re feeling.

Step #2: Create a trading checklist.

In Step #1 we determine why you lost money — and not just the emotional reason. We want to see where in the trading process you made a tactical error.

Next, we want to create (and use!) a trading checklist. This checklist will practically force you to follow every step in your trading sequence. It’ll prevent you from getting sloppy, and keep you from throwing good money after bad.

How detailed must this checklist be? As detailed as it needs to be for the particular method you’re using to trade.

Step #3: Paper trade to get your confidence back.

After a losing streak — or one big loss — you’re going to be hesitant to trade again. So don’t start with real money. Start by paper trading.

Even better, use an account simulator so it’s easy to track your wins and losses, and start trading in a simulated environment. Give yourself realistic starting capital, then see how you do for the next month or so.

Of course, you’ll be following your trading checklist the whole time. Don’t do things you normally wouldn’t do just because it’s “fake money.” Pretend as if this is the real thing.

Step #4: Start trading again with money you can afford to lose.

The fourth step is to start trading again with real money. If you’ve lost everything, you’ll have to save up a starting balance again. If you’ve only lost previously earned profits — and you still have your initial capital — you’re in a much better position.

Whatever the case, only use money you can afford to lose. There is a significant risk involved with trading, and you need to be aware of that going in.

So: Here you are. You’re finally back in the market again. You’ve got your trading checklist; follow it. You’ve gained some confidence back; don’t let it get the best of you. Stick to your trading plan.

Step #5: Continue learning, tweaking, and perfecting your method of trading.

The fifth and and final step is simple: Continue to learn and get better at what you do.

Always be learning. Always be practicing. Always be measuring your results and making minor adjustments so you get better results over time.

Every real trade you make is not only an opportunity to profit… it’s also an opportunity to learn and improve.

Best regards always,

A.J. Brown

4 Responses to “How to Bounce Back After a Setback”

  1. Alan Ellman @ 3:43 am:


    Great, sound advice. When making investments, there is always the chance that the underlying security can start depreciating in value. This can occur in any venue… real estate, the bond market, commodities and of course, the stock market. We must have a plan, an exit strategy, when this occurs.

    As covered call writers, we can buy back the option and then take action to decrease losses or even turn losses into gains. We can “roll down”, we can sell the stock and enter a new position, or simply wait for the stock to go back up and sell that very same option.

    These decisions can be made based on sound fundamentals and technical principles as A.J. suggests, taken from your trading checklist. The worst action an investor can take is no action at all, when your hard-earned money is at stake.

    Thanks for the sound advice and the forum to comment.


  2. lou @ 9:54 am:

    thanks aj for the sound advice….. just addressing the problems I had before is a start and knowing that i can still make mistakes along the way.. thats ok. just keep them small and let the profits run… im feeling better now….especially guided by the website..
    thanks again

  3. peter @ 3:17 am:

    nice to know about How to Bounce Back After a Setback.


  4. Danny Guttridge @ 11:31 am:

    I made the mistake of trying to trade options after only shallowly learning the mechanics of them and not actually learning to forecast the underlying stock. I ended up losing quite a bit of money and I’m learning how to do everything so I can bounce back; paper trading, studying, etc. Thanks for the advice!


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