If there is one feeling that currency traders universally abhor, it would probably be the emotion derived from watching a losing trade turn deeper and deeper against them. If the trade is left unchecked, things can get really ugly very fast. An overleveraged position can lead to an outsized loss; and as a position can move against you for an extended amount of time, these losses can irreparably damage futures.
For most traders the hardest part of trading forex is coping with financial losses. It is not simply a matter of pain and distress, but it is also a fact that losses are usually the catalyst that push traders into making their worst mistakes, which can then cause even greater losses, producing a vicious spiral in which the trader’s account spins out of control. Unfortunately, losses are an inevitable part of forex trading and you cannot improve your trades or become a consistently profitable trader if you can’t accept that.
Although it is a normal part of the overall trading process, losing is something that many traders–both newbies and pros–have difficult with. The main reason behind the difficulty in coping with losses lies with the lack of understanding rather than actual psychological problems. People who are experiencing loses misunderstand the negative emotions that are attached with them, which can cause anguish and despair. This eventually makes them quit trading forex altogether. People who cannot deal with the psychology of losing end up exiting the forex trading business quickly.
The first stage of loss enables you to deal with the losing trade. In this phase, you deny to yourself and to others that your trading idea was wrong, and that the loss wasn’t your fault. After the denial stage, you move on to rationalizing your trade setup. This is the point in time where you point out everything that’s right about your trade idea and do not even think about what you did wrong. You cite the appropriateness of your trading plan, profit target, stop loss, and entry point but totally disregard that you actually did lose the trade and made a mistake somewhere.
While some traders might profit regularly from forex trading, others struggle to attain the same level of success. Traders who are consistently successful are able to handle losses efficiently, taking them in their stride and moving on with the next trade with ease. They are comfortable with periods of loss and are able to successfully trade with continued discipline, despite the losses that occur. Above all else, these traders do not accept under-performance. They are constantly striving to improve their trades, by educating themselves and practicing relentlessly.