After losing some I won a generous amount of cash the other day. There I was sitting next to my computer monitor trying to stop the set of uncontrollable giggles that erupted right after the winning. This made me think – in the word of forex market, can forex trader feel the same excitement without losing? Is losing a necessary piece of a puzzle to enjoy forex trading?
We can all agree that winning something is absolutely amazing, especially if it is money. On the other hand, losing in forex trading can be closely compared to taking a beating. Could this be the reason why forex trading is so attractive, scary and yet no less fascinating?
The Importance of Losing in Forex Trading
Losing is a relative term and it differs from person to person. Based on time, self-confidence, financial situation, forex trading history and many other factors losing has different psychological effects. For forex traders with bank account full of thousands of dollars losing couple of hundreds won’t do a thing. At the same time a forex trader that cannot really afford a loss can go berserk! What do I mean by not being able to afford it? Let’s just say that your wife told you a month ago that you cannot use any more money for trading plus this is your 10th lost in the row. Do you get the picture?
The psychological and physiological reaction of losing is of course pain. losing a trade really hurts! And it hurts for real – your stomach turns up side down, your blood pressure goes bonkers, your muscles become so tense you can hardly breathe. It hurts more then a “no” from a girl you had a crush on in high school. As forex traders we have all been there.
Not just as forex traders but as humans the idea of pain is unbearable, so to get rid of the discomfort we try to find a way to get rid of the emotional rollercoaster. And you do it by clicking into another trade! What is the ultimate pain losing technique? Winning! And you want to make a good forex trade as fast as possible! And that is a perfect example of a complete disaster – you lost and you are extremely upset. On top of that you have exhausted from previous forex trades, your eyes hurt, your back is in pain, you have a horrible headache… all that accompanied by the pain of losing 5 minutes ago.
You want to feel better physically and physiologically. You want to show yourself that you are a great forex trader and to redeem your self esteem. Patience and a sense of reality go out the window and you impulsively make new forex trading orders without thinking straight.
What is important to realize that you are experiencing when you loose is out of your control. The physiological pain is controlled mentally and only patience can save you right now. Good forex trading requires lots of patience, good strategy and a positive attitude. You should not trade in a hurry. You should not forex trade when your body is out of control.
And here is the list of things you should understand and follow:
- You won’t feel like a complete loser after every forex trading lost, however it is important to know the triggers that turn on your psychological pain after loss. Recognizing the symptoms can save you a lot of money.
- Adjust your forex trading so that the opportunity of feeling the loss doesn’t happen too often. By that I mean trading with fewer amounts, or maybe setting stop loss better. The advantages of forex trading are of course the features and options forex brokers provide. Use them for your own good.
- When you loose, recognize it and step back. Turn the computer off, take a shower, go for a walk – cool down. It is important to change the atmosphere in order to not get too evolved in your own emotions. Physical loss reactions need physical action from your part. Stop forex trading and do something completely different, as far away from your computer as possible.
- If forex trading affects your life, finances or your family you should consider getting a professional help. Yes, sometimes forex traders need a shrink. Maybe forex trading isn’t for you in the first place.
Protect Your Trading Account
While there is much focus on making money in forex trading, it is important to learn how to avoid losing money. Proper money management techniques are an integral part of the process. Many veteran traders would agree that one can enter a position at any price and still make money—it’s how one gets out of the trade that matters.
Part of this is knowing when to accept your losses and move on. Always using a protective stop loss—a strategy designed to protect existing gains or thwart further losses by means of a stop-loss order or limit order—is an effective way to make sure that losses remain reasonable. Traders can also consider using a maximum daily loss amount beyond which all positions would be closed and no new trades initiated until the next trading session.
While traders should have plans to limit losses, it is equally essential to protect profits. Money management techniques such as utilizing trailing stops (a stop order that can be set at a defined percentage away from a security’s current market price) can help preserve winnings while still giving a trade room to grow.
Use Reasonable Leverage
Forex trading is unique in the amount of leverage that is afforded to its participants. One reason forex appeals to active traders is the opportunity to make potentially large profits with a very small investment—sometimes as little as $50. Properly used, leverage does provide the potential for growth. But leverage can just as easily amplify losses.
A trader can control the amount of leverage used by basing position size on the account balance. For example, if a trader has $10,000 in a forex account, a $100,000 position (one standard lot) would utilize 10:1 leverage. While the trader could open a much larger position if they were to maximize leverage, a smaller position will limit risk.
It’s pretty shocking, but the fact is that more than 95 percent of traders lose their whole forex investment pot in the first six months2, as the market can certainly be unforgiving. Part of the reason why this is the case is that there are still some people who see forex trading as a get-rich-quick scheme. This has strong links to the feelings of both luck and greed, two things that can act as a psychological block to anyone who is new to trading forex.
There are some investors who take incredible risks from the moment they start trading, thinking that “all risk, all reward” is the right approach to take. There is every chance that you could wrangle profits through this strategy on occasion, but the harsh reality is that luck always runs out within the forex market, with greed having the potential to do long-standing damage.
Traders who consistently push the limits, opting for high-risk moves, are often asking for trouble from a psychological standpoint. The allure of huge profits can certainly present quite an image to new traders, but when it comes down to it, luck and greed is a dangerous combination that can rip any solid trading strategy to pieces.
Another major psychological factor that every trader must face is actually at the opposite end of the spectrum when compared to luck and greed. Every time you trade, you are taking on some degree of financial risk; what is often linked to this risk is fear. All new traders will have to stare risk in the eye if they want to find success, as this is a psychological barrier that must be addressed sooner rather than later. The ramifications of leaving this situation unchecked are pretty destructive, as it could very well stop traders from taking the steps they need to expand, diversify, and grow a profitable forex portfolio.
Still, my question is whether the beauty of winning would taste as sweet if we didn’t sometimes lose trading forex. I can almost certainly say that it wouldn’t. Losing is a necessary part of forex trading. Without it profiting should be too easy…to simple… to shallow!