One thing that every forex beginner is afraid of while starting off their trading journey is dealing with losses. The ultimate goal for which we take this path and decide to take the risk is making Read More
Still, knowing the relevance of risking for a better future does not reduce the fear that we feel while placing the very first trade. Whether you are about to get into forex trading or already trying to deal with the occasional setbacks and losses that are draining you as a trader, this blog will be an insightful read to rewind your mind and restart when you feel ready. So, keep reading till the end and learn the 5 powerful tips to follow for dealing with losses like a pro trader. The first thing that you need to learn while getting into trading is that profits are not guaranteed and it does take some time to reach a level where you are consistently profitable. Devising a sound strategy does not happen overnight and making it work in the volatile currency market requires a good amount of knowledge and skills which again takes some time to obtain for a newbie. In short, you are going to lose some money in the process of making more money. But losing a lot of money is what makes us lose our minds as we forget to focus on risk management and do not set a limit on the amount we can afford to lose. Just setting a limit is not enough as we will have to manage the risk in a way that we don’t lose anything over and above the set limit. Now, if you don’t close a losing trade early, you will end up losing a lot more than what you are comfortable with. As long as the losses are manageable, you don’t have to worry about them. Forex traders always talk about their wins and losses in the number of pips earned or lost in a trade and hence pip calculations are important for limiting the losses. You can rely on an automated pip calculator to determine the accurate value of pips in the currency of your choice and plan your trade entry and exits based on the number of pips you want to catch in a trade. One key difference that you can see between novice traders and experienced traders is that the seasoned pros are not bothered about the possibility of a loss as they are already prepared for it. They have seen all kinds of market situations and trade scenarios and thus they don’t panic when something goes wrong during the trading process. They are ready to take action while newbies are easily overwhelmed and intimidated when the market becomes unpredictable. A professional trader will have realistic expectations and their trading approach is more rational. As a beginner, you need to play it safe as you are still learning and placing a stop loss serves as a safety net in case you fall. A stop loss is an automated exit that takes you out of a losing trade before the loss takes a huge toll on your account balance. The stop loss does not prevent a loss but it does minimise the impact of the loss. The stop loss should not be too close to the entry price as it does not give enough room for the trade to run and even a minor pullback can lead to the stop loss being triggered which takes away the trading opportunity. So, you need to decide how much amount you can afford to lose in a trade and place the stop loss based on that. If you want to remain flexible with the stop orders, you can try trailing stop loss which moves on its own based on the market situation. The reason why many traders end up losing a significant portion of their capital is revenge trading. When we encounter a number of losses in a row, we just want to recover it by winning a few trades and getting into revenge trading. However, the possibility of recovering the lost money from revenge trading is thin as you are just making impulsive decisions while being emotional and the chances of winning a trade without applying any logic is very narrow. The cause of revenge trading is often the inability to control our emotions and this costs us a lot in live trading. Revenge trading often leads to overtrading which again increases the losses. Now, how can you quit this habit? The answer is simple but hard to implement. You will have to gain emotional control and follow a disciplined approach towards trading. You should accept the losses gracefully instead of chasing profits. One thing you can do to build trading discipline is practise on a demo account. The demo account is a risk-free place for learning but you get to trade in real-time market conditions and see how your strategy will work in the live market while using virtual funds. Besides trading in a demo account, you should also consider using different trading calculators to place your trades smartly. For example, you can use a profit calculator to calculate estimated profits in a trade. You can do this by adding the lot size, number of lots, and opening & closing price. It’s a good way to trade in a disciplined way because you can exit the trade when the desired amount is earned. Being consistent and disciplined as a trader is not about trading continuously without any break. You need to indulge in continuous learning and keep pushing through the difficulties but this does not mean that you cannot take a time out when you need to. When you are dealing with losses, it is normal to feel stressed and often this stress can result in burnout for a full-time trader or even a beginner. Hence, you should learn to take breaks when the market is not moving in your favour and come back after reflecting on your decisions as it helps to see where you went wrong. Sometimes, it is just the timing and sometimes you need to work on your strategy when the market is shifting. Basically, taking an off gives you enough time to figure things out and do better when you come back. The forex market will be there for a fairly long time and you won’t be missing out on any opportunity while staying out for a short while. Trading can be a tiring task at times and you really need to get back your energy by doing something that is not related to trading. This can be hard for someone who is a workaholic but trust me, such breaks are much needed for a trader and such breaks are a must after encountering losses in a row. The last tip to deal with the losses like a pro trader is minimising the losses by placing smaller-sized trades. Minimising the trade size surely reduces the pressure that you feel while making trading decisions. If you are not yet ready to trade with standard lots, trade with mini or micro lots. You will still be trading in the live market but the risk will be lower and that way, you can learn to handle the losses without losing much in the first place. Optimal position sizing is the first rule of risk management and when you are good at managing the risk, you will be able to deal with the losses like a professional. When you are a beginner, start with a smaller amount of capital and trade with micro lots to limit the risk per trade. You can gradually increase the trade size and even use leverage after you feel more confident in your skills and strategy. But until then, you should follow a cautious approach and avoid taking excess risk. Because the initial phase of a trader is to make mistakes and learn from them. When you are able to control the risk, you will not be stressed about the amount you lose while making these mistakes. Instead, you will be able to focus on the lessons you learn as a new trader. Wrapping up So, these are the 5 powerful tips that can help you to deal with the losses like how a professional trader does. In the end, losses do not define your success as a trader, because even the most profitable and experienced trader encounters losses now and then. You should never stop trying as you are not losing as long as you are learning something from the process.
