Every trader will say that the most difficult part of Forex trading is dealing with losses. The beginners and the most experienced all find this part of trading hard to overcome and can even sometimes come with unexpected consequences and is the reason many traders quit. The loss that a trader makes can sometimes push them into making mistakes that could then count to yet even more loss of profit. From then on after a trader’s stock account could take a vicious downward spiral.
To be able to deal with such losses and to not allow them to have a negative impact on your trading account then you must have a strategy which helps you deal and cope with it when it essentially happens. Aside from actually having a strategy it is vital that you can easily execute such a strategy when you need it. To be able to develop a coping strategy you also need to be able to understand the logic behind your losses. Here are some things that you need to know:
Losses Will Happen However Experienced You Are
Losing trades is bound to happen, you cannot avoid it. Through the way the nature that the market moves you cannot depend on making profit alone. There are two methods that some traders use and follow which are supposedly proven to reduce losses. To be able to use them you need to understand them totally.
The first method works on the belief is that id you add to a trade which is losing then in effect only your timing was wrong. You can then add on to that trade with a larger amount that on the previous entry which in effect makes recovery easier. Although this can essentially work as a method you will probably get better results by just simply ‘accepting’ the loss in the first place and close the trade before attempting to rescue it. If you think about it with some logic then why would the second trade be any better than the first?
The second method is called ‘turning in the wind’. This means that you open a trade in the opposite direction. This isn’t directly avoiding a loss but it changes the loss by changing your position.
Aside from these two methods there is one other thing which you can do and that is letting the trades run further away from your goal and to not close them. Eventually you will blow your account if you let this happen.
There is no way you can avoid losses however many methods you try to use. The important thing is to know how much loss you can tolerate and how to deal with it when it happens.
Have An Honest Conversation with Yourself
Once you have accepted the fact that there will be losses when trading then it is important that you understand how much loss you can tolerate before quitting. Even though you think you can cope with a 50% loss for example you might not be able to accept more than 35%. So that you can understand how much you can take then you need to sit down, close your eyes and visualize it happening. Try using a practice account to see what your feelings are when you make a loss, CMC markets is a great platform that helps traders work through the process of making losses.
Another thing to consider is that as your account grows bigger it is harder to turn the losses back into profit. Although it isn’t a happy fact, the more you losses, the harder it is to get back to where you started.
Use a Method You Believe In
It is important that you use and practice a method and strategy that you believe in. You need to be sure of yourself and your trading methods as well as being able to cope with your losses with peace of mind. If you want to pursue trading with Forex then you need to be able to create a stable and sure account that you are at peace with.
Last but not least make sure you don’t give up. There is no trader that hasn’t had a loss so don’t think you are the first and you won’t be the last!
