This sounds like one of those boring clichés that constantly pop up in underdog movies, but it does hold true when it comes to forex trading. If your main objective is to know the ‘ins’ and ‘outs’ of sound trading, then one of your very first steps should be to experience a loss.
This might not be a fun idea to imagine in your head, but it would be a mistake to turn your back on the idea of losing. Realizing the concept of losing properly in the market is a crucial lesson that every good trader goes through at some point in their career. If your aim is to make a quick buck and cash out, this article might not be for you. For those who approach trading like a highly professional job and want to make money on a consistent basis, keep reading…
Let your brain get acclimatized to losing
Far too many rookie traders are hardwired to avoid losing money at all costs. According to psychology, this is a normal human tendency in all walks of life. But in the cold-blooded
profession of forex trading, this normal human tendency can easily end up in trading accounts being blown apart and resulting in great damage which cannot be undone.
Losing money in a variety of ways is an integral component within the world of trading. If this is not accurate, then there would be many more millionaire traders living a happy life. Since losing money is a guarantee, the ability to take a calculated loss ends up being a valuable trait in any successful trader. You can stay the execution (or losses), but you cannot keep running away from it indefinitely. The longer you delay making a loss, the bigger the hit you suffer.
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You need to start thinking of losses as just a part and parcel of doing business in the trading market. Obstacles have to be dealt with before you can make money in any business. Hence, start thinking of losses as the expenses of conducting your business. In other words, losses are just another addition to normal expenses like commission for brokers, cost for your internet, etc. This way, your mindset changes from ‘avoiding’ to ‘managing’ loss of money.
Necessity of learning to lose properly
If you were to learn how to lose properly, then you gain the ability to dictate how much you are willing to risk on any single trade. In other words, you remove the element of a rude surprise from the equation.
You see, traders seem to get hurt or experience frustration due to the occurrence of two events in particular:
- They mentally prepare themselves for a ‘win’, but end up losing.
- They end up making more losses than they can mentally handle or afford to lose in a trade.
If you are honest with yourself and willing to face reality, then these two events are relatively easy to solve. As far as the first event is concerned, you simply have to realize and get used to the fact that any trade you place could potentially end up being a loss. You can never be certain which trade might end up being a winner or a loser. In other words, never be certain about a positive result.
When it comes to the second event, whenever you place a certain amount of money on a trade, prepare yourself emotionally to losing the entire sum. Since you are not certain how any one trade could end up, the element of risk in every trade you undertake should be well within a range you can handle.
To sum things up, change your mindset on how you view losses. Manage them rather than avoiding them. Every trade cannot be won and there is no guarantee that any trade could be a winner or loser. Maintain zero expectations and only risk what you are emotionally prepared to lose in any single trade.
Steps to losing soundly
If you have reached this part, then you must have accepted that your trading career is going to be a series of random trades that could be lost or won. So what is the trick to losing graciously on any particular trade? Here it is in a few simple steps:
Step 1: Accept that losing trades is inevitable and formulate a plan so that you can keep your losses to a bare minimum.
Step 2: Look within yourself and find out how much you are willing to lose on a particular trade.
Step 3: Your position size on a trade has to be calculated by finding the optimal place to hand in the stop loss. Then, calculate the no. of lots that you can trade without exceeding the already determined trade value. Keep emotion out of your decision.
Step 4: Once the trade has been set up, you…forget about it for a while.
Step 5: Stop avoiding the loss and stay disciplined.
Conclusion
Swallow your pride, cast aside your ego and learn a few hard truths. The only way to be a successful trader is to manage your losses. Over a longer period of time, such a philosophy is bound to leave you as a winner. Just like a business, all you need to worry about is making sure that the revenues coming in exceed the expenses going out.
