Losing a trade is not a mistake Yet; it is a learning lesson. Never consider losses a setback when they occur. Even the most successful forex traders have experienced significant losses in their careers. Losing is just a part of your trading journey
However, how you bounce back from forex trading losses defines your career as a forex trader. Losses can significantly damage your trading psychology if you don’t know how to deal with them.
Key Takeaways:
You should plan to handle significant trading losses as you plan for your investing and trading strategies.
You should plan your psychological loss-handling strategies at the same time you are planning your trading strategy
Always resolve the issue that caused significant trading losses before you start a new trade.
Can You Use Forex Trading Losses To Improve Your Trading?
Yes, you can have a positive comeback from a terrible trading loss and become a successful trader. The key point here is to accept that your trading losses in forex are just a part of your trading journey. The sooner you know how to deal with trading losses, the better off you will be.
Here are ways to ensure that your losses are kept to a minimum and that you can improve your trading by learning from these losses.
Accept Responsibility
How do forex traders deal with losses? - By accepting responsibility which allows you to have an objective eye that can identify the issues that caused the losses. But if you continue blaming others, you will always miss the point.
Neither the markets nor your financial advisor controls your trades. You are responsible for the trading decisions you make. Taking ownership of any losses incurred will help you devise ways of dealing with forex trading losses.
2. Review The Size Of Your Position
Reflect on how much risk you are taking per trade. Is it too much? A yes response means that you are jeopardizing your trading capital. Position sizing could still be a challenge that you need to be made aware of.
The essential tip for reviewing your position sizing is to ensure you allocate a small percentage of your capital on a single trade. It will reduce the overall market risk and allow you to regain a comfortable trading position.
You can start with the 2% risk rule. It is a trading strategy that limits your risk to less than 2% of your capital per trade. The 2% risk rule should help you avoid big forex trading losses.
3. Analyze Every Single Loss
The process of analyzing your losses might be an unpleasant exercise for you to do. It can be time-consuming as well but yields positive answers that explain your previous losses. It is an honest and brutal analysis that helps you reflect on the past as you plan for the better by adjusting your trading strategy and putting it back to work.
4. Use Stop-Loss Limit
We can never emphasize the importance of a stop-loss limit enough. It helps you cut your losses early and detach yourself from the emotions in live trades.
Remember, a good trader is not only finding trading opportunities but also managing risk by cutting losses early. There is an important saying at Wall Street: "Cut your losses short, and let your winners run."
5. Control Your Emotions
You may ask Why do I keep losing money in forex? The simple answer to this question may be that you can’t control your emotions when dealing with forex trading losses. One of the common occurrences is the desire for “revenge” after suffering significant losses. Instead, get away from your computer and go do a relaxing activity that will distract you from your misery.
6. Review Your Exit Strategy
You could miss out on profits and end your trades on losing trends because you don’t have an exit strategy or a take-profit order. As much as winning is enjoyable, you must know when to stop it and take profits. Professional traders will tell you that exit time is the difference between winning and losing trade.
Therefore, create a strategy that will allow you to optimize your winning trends to avoid the reversal of this trend. Put your take profit and stop loss limits, so your emotions won't control your decisions.
7. Use A Trading Journal
Trading journals can help you when dealing with losses in forex. They are a reflective tool that shows the pattern that led to the big losses you made in trading forex. Learning from these experiences offers an unmatched strategy to bounce back from a big loss.
As a tip, you should keep an active trading journal with details like entry and exit levels, wins and losses, and the emotional mindset during and after every single trade you take.
8. Question Your Decisions
As mentioned earlier, you are responsible for every trading decision. Therefore, you must ask yourself critical questions when coping with trading losses. Here is a set of questions to ask yourself:
How much did I risk on this trade?
Did I enter the market early or exit late?
Did I miss a signal and chase the trade?
Are there any signals that I ignored that affected this trade?
Do I need to change anything to avoid this situation in the future?
You must be honest when answering these questions because they will inform the decision of how to cope with trading losses.
Should You Bounce Back Immediately After A Loss?
The forex market has more than 250 days of trading; thus, no rush to get back into the market. All the negative emotions emitted after losing a considerable amount of money can lead to irrational trading decisions. Significant losses cause inner conflicts and a thirst for revenge.
It would help if you had a clear head before you could resume trading. Gather yourself and make a comeback after you have observed and analyzed your trading journals thoroughly.
Refocus, Practice, And Build Confidence
When it is time to trade again, start creating a new focused trading plan after what you have learned from your journals. Practice your new trading strategy on your Forex broker trading platform as you build more confidence. Always remember to journal your unique strategy to reflect upon periodically.
You should be proud of yourself for coming back to trade as the statistics show that among all-day traders, about 40% of the day trade for only a month. Within three years, only 13% remain and after five years, only 7% remain.
Final Thoughts
A trading loss can be an emotional setback. However, following the tips above, you can bounce back, prevent potential forex trading losses, and help you turn your losses into learning lessons to improve your trading and risk management strategies.
