In the number 1, the sentence is not over. You are using the past continuous so it is a way to set the main action before introducing an interrupting action, here is an example: "Three years ago, he was losing money hand over fist when he found a solution to stop the loss." Here "found a solution" is the interrupting action (always in the simple past). The number 2 is correct, you used the simple past to talk about an action that is located at a precise point in time (3 years ago) and which is over. If you need further explanation, just let me know :).

They mean the same but they feel different. #1 paints a picture. #2 states a fact. "Losing" is an adjective, like "happy". Grammatically, the sentences "He was losing" and "He was happy" have the same structure. Both describe the person using adjectives. Adjectives paint pictures. #2 uses a verb ,"lost", instead of an adjective. Verbs ACT rather than describe. When you use a verb, something happens: "he lost!". That is not a picture. It is an event that happened. Many people call the adjective "losing" a tense ("past continuous", or whatever). That's not my way of looking at it, but it's fine if it helps you. But continuous motion over time is like a picture - it is something that you can visualize, so in that sense these two ways of explaining "losing" are really similar. Whether to use #1 or #2 depends on what you are trying to do. To tell a story, you must use verbs. You cannot rely on adjectives. However, you also want to use adjectives because a story without descriptions is too factual. Adjectives help your imagination. You need both. The structure of a story is built with verbs, but the adjectives are needed embellishments.