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4 Steps to take after a loss in Forex
Written by: PaxForex analytics dept - Friday, 27 June 2014 0 comments
There are plenty of articles online which talk about the positive aspects of forex trading and things to do in order to become a better trader. Those who succeed as traders will be able to enjoy plenty of great benefits which make the hard work required to achieve consistent profitability well worth it. Trading successfully means working on your trading skills every single day and seeking to improve your trading strategy, entry level, exit levels and risk management.
Very few talk about what one trader should do after faced with a trading loss. Please keep in mind that occasional losses are part of trading and that you will never be able to achieve a 100% success rate from your trades. The importance is to make sure that losing positions are far less than earning positions, not only on a numeric base but also on a pips base.
Here are 4 steps to take after a loss in forex:
Walk away from your trading desk – This should be the first step as plenty of traders experience plenty of negative emotions after they realized a trading loss. Operating under this scenario only leads to more losses and therefore it is best to go for a walk, grab some coffee or do anything else for thirty minutes to an hour in order to cool down and let the emotions fade away.
Analyze why the loss occurred – It is important to understand why the loss occurred in order to
learn from this. In case a loss is isolated than there is nothing more to do than simply move on and keep trading. Sometimes an economic report was forgotten which caused a sudden price move and corrupted the trade, but often there may some fundamental issue with the trading strategy. Analyze the loss and learn from it.
Make necessary adjustments – Should the loss be due to fundamental issues with the trading strategy, identify the variable which was most likely the cause for the loss and make the necessary adjustments before resuming to trade.
Monitor the changes made – It is very important to monitor any changes made and keep track of how they influence your trades. Should losses increase revert the changes and make an adjustment elsewhere in your strategy. Fine tuning a forex trading strategy is best done by trial and error which means you have to make adjustments, monitor performance and compare results.
It is very important that you do not panic after a loss as panic will lead you nowhere. Understand that losses are part of trading and every trader faces them from time to time. Also avoid revenge trading which is done out of anger and in an attempt to recover losses. Revenge trading often just adds to losses in a very short time which causes a downward spiral of emotional trading and further losses.