Trading Losses: Avoid Disaster and Thrive with Tips from a 4-Time World Champion Trader

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In both trading and life, there are no “highs” without some “lows.” Every trader, even the most experienced, goes through ups and (draw)downs. Since these fluctuations are unavoidable, the best thing we can do is to prepare by applying effective risk management strategies.

Losses can be daunting, but they are a reality that must be faced with the right mindset.
The sooner you accept losses as part of the game, the sooner your confidence will stabilize, even when the market is shaky.

A boat’s sturdiness is tested in rough waters, but its structure is built patiently during calm periods. Invest in these periods to stay afloat when the going gets tough!

In this video, Andrea Unger offers some invaluable advice to help you tackle what might seem like a daunting challenge. Watch now to learn:
-How to handle losses and the emotions that come with them
-Why drawdowns are an integral part of trading and how to deal with them
-Why risk thresholds vary for different traders
-The importance of setting realistic expectations
-How to maintain patience and avoid confusion
-Practical tips from Andrea's vast market experience
-A fascinating anecdote about risk featuring Andrea and Larry Williams!

Enjoy the video!


Trading isn't a shortcut to riches

Losses in trading, they do exist! Yes, I mean, the point is that you can lose money in trading. You can lose for prolonged periods. Those are called drawdowns. And these are there. I mean, there is no method in trading, at least I've not discovered it yet, where you always make money with no risk of losing. All methods, sooner or later, encounter periods of trouble. This is normal.

The danger of overconfidence in your strategy

The point is that many people who approach trading don't expect this or even don't consider this. They strongly believe that at last they found the Holy Grail, a new method, a wonderful method that will put only money in their pockets. That, unfortunately, is not true. One of the worst things that can happen, I always say this, is if you are a newbie trader, you have just started, the worst thing that can happen to you is to make money. Yeah, to make money. Why? Because normally, if you start a new thing and you start making money, you believe, "I got it", at least "I got it". This is fine, but it's wrong because you didn't get anything. You got a method, and for a coincidence, that method made money in that period of time.

Setting realistic expectations and maintaining a mindful approach

In the long run, the method will make money, but not on a regular basis. There is no method out there putting money in your pockets every day, every week, every month. No, it's a method that in the long run will end up making more money than it lost, which is what we're looking for. But if you start making money with your first approach to trading, you believe that you found the secret, you believe that you found the right way to go. And this is dangerous because there are two things that happen afterwards when you encounter the drawdown.

The worst-case scenario for any trader

One thing is that you get extremely discouraged. The problem is that you get lost. You get lost because you think your toy is broken. That's a bad feeling. And that bad feeling doesn't help because psychology needs to accompany you in trading. And if you are discouraged, you might have trouble in managing your trading, even if it's systematic. The other thing is that you start believing that it's all a scam. You were so enthusiastic one day before and then all of a sudden you say it's a scam. This is contradictory, but it's psychologically acceptable.

It's a mistake because, of course, again, you jump maybe to other solutions, which might be fine, but it's not the way to go. I mean, if you embrace a method of trading, you should at least give that method all the time to develop and for you to put all the efforts in that to construct it on a complete basis, which is what we need and what we aim to put in place.

Andrea Unger's strategies for navigating tough times

Personally, I find strength during the bad periods, but I'm passionate about trading. I'm not happy when I lose, but when I lose, I try to find out what's going wrong, if it's normal, what is happening, and if there is a way to go to mitigate the problem or to change completely the situation, which is new developments. I use the Unger Method, of course, I'm Andrea Unger, but you might just try to find how to use that method of developing for other markets or other approaches to trading which can cope with what you are doing and help in putting gains where the other systems are producing losses, things like that. I like that. I like to find the solutions. I don't like the reason why I'm looking for the solution, which is the losses, but of course, this is normal.

And I go on because I believe in what I do, of course, I've been here for over 20 years now. The problem is that people don't expect this, and when they get the drawdown in their hands, they start making mistakes. Mistakes which are also maybe exposing with a higher level of risk. Maybe doing this after they change something, so they believe in the new solution, but they are not patient. They say, "Okay, the new solution works. I go with higher risk and then I recover". This is really dangerous.

Personality tests and trading: Insights from Andrea Unger

By the way, I will tell you one thing. You all know Larry Williams, probably, as a trader. What you might not know is he has a son who is a doctor and he analyzes the psychological mindsets of people. In particular, once, Larry asked me if I wanted to participate in, let's say, a survey about traders, and I accepted. So his son sent me a number of papers I should fill in with answers to questions just to profile me as a trader. And he wanted to do this with a number of profitable traders around the world. Of course, Larry knew many of them because he's number one.

Well, I did all my homework. I sent it back and I got a response soon after. The response was that I was doing things properly. Everything was in place, but I had aversion to risk. I was risk averse. I could risk a bit more to obtain better results. Well, I will do it. So I immediately started increasing my risk. I was not lucky because exactly after I increased my level of risk, what happened? It happened that my strategies went out of line with the markets. They produced losses, and those losses were even higher than normal, so I lost more money than expected. I reduced again the risk because I found uncomfortable with that level of risk.

This is to me that you have to work with your own risk. You don't have to overexpose just because you think it's good or because you believe that it could offer better opportunities. You have to be aware that there will be losses in your trading and you have to cope with this. It's a cost. It's like cholesterol in blood. You have it. You cannot get rid of it. It's a problem that you have. But if you follow a good lifestyle with good nutrition and so on, all things that you know you have to do, I mean, then you keep it under control, which is the purpose of that kind of lifestyle and your purpose.

How a solid plan can help you manage losses

Also in trading, you have losses. Those are there. Drawdowns will be there. But if you approach trading with a proper planning and risk control, you can keep it under control and therefore go ahead as a trader. Don't believe that anybody can give you the tool to make money consistently every way, every day, every time. No, that doesn't exist. Unfortunately, I've not found it. I would be happy to, but it doesn't exist.

So you have to be aware that you will encounter losses. Just try to keep them under control. This is all you can do. And be ready, be psychologically ready that you will be going through worse periods. When those periods come, sit down quietly, analyze things. Are they done properly? Yes. Are you over the risk that you expected? No. Well, fine. This is what you planned.

How well do you really know yourself?

I remember another thing. In 2009, I was thinking about my risk and I said, oh, I can easily tolerate a drawdown of 25%, okay? Then at a certain point of time, I was losing and I was really uncomfortable. I was really bad. I was feeling really bad. So I looked into my numbers and I was at a drawdown of 11%.

I imagined coping with 25% and at 11%, I was nearly dead. Also, when you plan, when you plan your activity, don't overestimate your capability of coping with drawdowns because they are never nice. Try to lower the level, your pain level, because believe me, it hurts when you are in a drawdown. Don't really think that you can easily cope with higher levels because it's not that true.

And when you see the equity lines of strategies and you have drawdowns, and then you say, "Okay, but I will easily sustain the drawdown because look at where I ended up". Yes, but during the drawdown, you don't yet know where you will end up later on, so not always you get where you see in the past strategies.

So, just to let you know that drawdowns are there, losses are there. They are part of the cost of your trading activity. They are not nice. I don't like them, but I have to be aware they are there and to prepare myself. So prepare yourself. Don't get scared when you meet them. It will happen. Be prepared and do things properly. If you do things properly, sooner or later, those drawdowns will see new peaks.

That's it. Andrea here. See you next time. Ciao.

Need More Help? Book Your FREE Strategy Session With Our Team Today!

We'll help you map out a plan to fix the problems in your trading and get you to the next level. Answer a few questions on our application and then choose a time that works for you.

Andrea Unger

Andrea Unger

Andrea Unger here and I help retail traders to improve their trading, scientifically. I went from being a cog in the machine in a multinational company to the only 4-Time World Trading Champion in a little more than 10 years.

I've been a professional trader since 2001 and in 2008 I became World Champion using just 4 automated trading systems. 

In 2015 I founded Unger Academy, where I teach my method of developing effecting trading strategies: a scientific, replicable and universal method, based on numbers and statistics, not hunches, which led me and my students to become Champions again and again.

Now I'm here to help you learn how to develop your own strategies, autonomously. This channel will help you improve your trading, know the markets better, and apply the scientific method to financial markets.

Becoming a trader is harder than you think, but if you have passion, will, and sufficient capital, you'll learn how to code and develop effective strategies, manage risk, and diversify a portfolio of trading systems to greatly improve your chances of becoming successful.