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How to Handle Trading Losses
Written by: PaxForex analytics dept - Saturday, 08 July 2017 0 comments
Forex's popularity entices traders of all levels, from greenhorns just learning about the financial markets to well-seasoned professionals. Because it is so easy to trade forex with round the clock sessions, access to significant leverage and relatively low costs it is also very easy to lose money trading forex. Sooner or later every forex trader gets struck with an unexpectedly big loss or a line of such losses. Usually, it is just the matter of time and trader’s reaction to the resulting emotional and economical draw-down.
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. There is no point in obsessing over a high winning percentage; instead you need to focus on cultivating your trading skills and seeing the bigger picture. Even during the lowest periods it is essential to remain committed to your trades. Love everything about the entire process – including the losses. By being passionate about your trades you will be able to improve your trades and succeed.
To succeed in forex trading, it is imperative that you minimize your losses as much as you can while gaining as much profits as possible. This is because when your losses are small, you can still carry out your forex trading and stick it out longer than those times when the market moves against you. Also, when your losses are minimized, you are more likely to be
better positioned for when the trend turns around in your favor. The one proven method to keeping your losses small is to set your maximum loss before you even open a forex trading position.
If you followed your forex trading plan but the trade went bad, note down in a trading diary what market conditions were and the reasons why you made this trade. Then, focus your mind on something else, it is important to be fully released from this loss and mentally ready to trade with a fresh perspective. After the markets have closed, you can review this particular trade. Your trading system might not be perfect for all market conditions. If this is true, you will need to identify the market conditions that best suit your system.
Anyways, do accept a loss! It is normal to have some forex trading losses, make sure you balance them off well. Most of the retail traders when they get forex trading losses, especially larger losses, they would get into revenge trading, they would enter trades even based on nothing, not even setups that have high probability. All this because they think that the ultimate trade is now going to hit and get the account back up to profits. If you've just taken a big hit, stop trading for a couple days. You aren't in the right head space to make proper decisions anyway. When you come back, look at your trading plan and your trading. Address issues as to what is causing the problem and make any necessary trading plan changes.