What to do if I have a position loosing a lot of money?

Whether it’s a stock, fund, or crypto asset, watching red ink pile up is stressful. But panic rarely pays. Here's a step-by-step guide to navigating the situation wisely.

1. Pause. Don’t Panic.

Emotions often drive poor decisions. Take a breath and avoid knee-jerk reactions. Market downturns are part of investing, and temporary losses are not always a reason to sell.

2. Assess the Fundamentals

Ask yourself:

• Has the reason I bought this investment changed?

• Is the business (or asset) still fundamentally strong?

• Was this trade based on hype or a sound thesis?

If the investment is still solid but facing short-term pressure, holding—or even adding—could be justified. But if the thesis is broken, it's time to reevaluate.

3. Revisit Your Time Horizon and Risk Profile

• Long-term investor? Volatility is normal. Stick to your plan unless something fundamental has changed.

• Short-term trader? You need clearer exit rules and may need to cut losses quickly.

If the position no longer fits your risk tolerance, it’s a sign to rebalance.

4. Set Rules for Cutting Losses

Don’t let hope manage your portfolio. Consider:

• Stop-losses to limit downside

• Position sizing rules so one bad trade doesn’t wipe out your portfolio

• A predetermined loss threshold (e.g., -20%) beyond which you reassess or exit

5. Evaluate Tax Implications

In some countries (like the U.S.), realizing a capital loss can reduce your taxable income. This is called tax-loss harvesting—a strategic way to make the most of a bad situation.

6. Learn From the Trade

Ask:

• Did I chase hype?

• Was I too concentrated?

• Did I ignore warning signs or fail to research properly?

Losing money is painful, but valuable, if it leads to better discipline and process.

7. Don’t “Double Down” Blindly

Avoid throwing good money after bad just to lower your average cost. Only add to a losing position if:

• The fundamentals are still strong

• Your conviction is high

• It fits your risk tolerance

Otherwise, cutting losses may be the wiser move.

Final Thought

Losses are not failures. They’re tuition in the school of investing.

The goal is not to avoid losses entirely, but to manage them, learn from them, and ensure they don’t derail your broader financial goals.