Handle trading losses is mainly handling your Trading Psychology
How you handle your losses and especially if you are having consecutive losses?
Forex trading psychology is important than master the trading strategy itself.
Using the effective way to deal with your trading losses can make you a better trader, achieve your trading goals.
In this post, I have listed 20 ways that I used to help me to get out of the “pain” and keep me improving trade by trade.
The first thing that I usually do is…
1 Take a Rest – Walk Away From the Screen
If you are a new trader, walk away from the market is a good choice.
This is what I do when I starting to learn trading.
My heart beat will increase and I was scared!
Then I just wake away. Take an emotional rest.
I know that I cannot make a good decision and focus when I have an unstable emotion.
This simple action can help you to “accept” that you have took a loss.
When your emotion is not stable, you will have higher probability to make more mistakes in trading.
Take a pause.
Stable your emotion.
2 Take All Responsibility – Do Not Blame
Do not blame the market.
If you do that, you will not be a good trader, the profitable one.
When I take a losing trade,I will normally know it’s because I didn’t follow my trading plan.
I admit my mistake. I didn’t blame anyone.
If I am not admit my mistake, that means my trading plan are not working.
If I am not admit my mistake, that means that I’m a loser.
Responsible for all of your trading result.
Do not blame.
Not only in trading, but also in other categories of our life.
Blaming is the loser game.
Be the winner.
3 Learn Mindfulness – Observe Your Feeling
When we walk away from the screen, to tend to stabilize our emotions.
But we need to sense our unstable emotion to allow us to walk away. So I encourage traders to learn mindfulness.
Mindfulness is about observing your environment, observe in yourself.
You can start with noticing your breath.
Control your breath by breathing slowly.
Then ask yourself: “how am I feeling now with the trade result?”, “why I’m having this kind of emotion?”
Observe it, let it pass.
This technique is important for all the traders.
When you learn to do that, you will tend to do less mistakes or taking revenge on the market.
You are a human who “have” emotion, not the emotion “have” you.
4 Meditation – Psychology Exercise
Meditation is related to mindfulness.
Some of the meditation was invented around the element of mindfulness. But meditation are more than mindfulness.
Meditation helps you to express out your gratitude, your love and have a positive mindset to go for your goals.
Good meditation practice allowed one to live fully in their personal life and trading life.
Having a good personal life related to handling trade losses???
Yes. It does.
It allow you to optimize your forex trading psychology.
Bad trading behavior tends to appear when the trader cannot manage their personal life.
I have had this experience before, many times.
E.g. after I have an argument with my family, I will feel uncomfortable.
That feeling is not like a big emotion swing (fear, anger, etc….).
The uncomfortable feeling will take days to disappear itself.
Sometimes, it will not disappear yet staking with other uncomfortable feeling.
This lead me to feeling frustration toward almost everything in my daily life.
But I just don’t know how to solve it.
Of course, this “mental illness” lead me to bad trading behaviour and consecutive losses.
Then I tried meditation. It works!
It works so good that I tell the traders I know about meditation.
I hope you will learn it too.
There is one meditation method that I used and I would like you to try it.
This type of meditation is quite different from the traditional one.
It is for the goal achievers, entrepreneurs and the do-er.
It gives me a lot of power when I practice it daily. I’m feeling connected to others and achieving my goals day by day.
It is from Vishen Lakhiani, the CEO of Mindvalley – The 6 Phase Meditation (It’s free!).
5 Slow Down Your Trading Pace or Frequency
Take it easy.
When you take consecutive losses, maybe try to decrease your trading pace.
You can use a larger time frame to trade and adjust your pace.
Just like jogging, find you breathing pace back after it is disturbed.
To slow down not only to stable your emotion, this also give you extra time for you to process and follow your trading plan.
Slow down until you find the pace back.
6 Journaling – Review Feedback from Losses
Journaling will let a trader revise his trade and record down the mistake he made.
It can let a trader improve when he met a similar trading market in the future.
Journal of trader can write down the steps or things that need attention during trading condition.
E.g. When I have consecutive loss. I will tend to under-trade and miss most of the good opportunity to enter the trade.
In the journal, I will write down what is my feeling when I have the fear of trading and what is the symptom. Then I will be more aware of my actions in the similar condition next time.
For new traders to start writing your journal, you can ask yourself a few questions like:
“Why I will read the chart with this method but not the other type.”
“What is the emotion I have before, during and after I placed the trade?”
“Did I placed a good stop-loss and risk-reward ratio?”
Write down what you feel, how you react and how you act.
When you write a journal, it is just like you repeat the same trade twice.
If you did not review your loss trade, you will tend to make the same mistake again.
Failure without learning from it, is not the mother of success.
7 Optimize Your Trading System With The Feedback
After you have your journal, you can try to optimize your trading system based on the ideas from your journal.
Your trading strategy should not do any changing just based on one or two trades. It is because one or two trades cannot give a big picture to your trading system.
Remember that trading is a probability game.
Before you want to change any of your trading strategy or testing you new trading idea, you can always backtest your strategy or trading use a demo account.
8 Be Prepared for Losses In Next Trade
Even if you are having a high winning rate trading strategy, you will also have chances to get one more losses in the next trade.
So you need to be psychologically prepared.
For me, most of the time I will be psychologically prepared to lose my money when I placed a trade. So that a trading loss will not hit my psychology so hard.
When I trade with the thought that a trade “should” be profit but turn out to be a losing trade, it gives me an impact and causing me to produce some negative emotion.
So, Set yourself to win by following your trading system and ready for the worse by preparing to take a lose.
9 Physical Exercise Enhance Forex Trading Psychology
Workout or any exercise is one of the ways to express out your disappointment or frustration after taking trading loses.
The simplest exercise is jogging. Jogging can maintain your physical health and also help to keep you from a bad mood.
There are also scientific research about exercise can kick away depression.
If you have a bad day after you taking lose from trading, then go to exercise.
Run and sweat a lot!
When you feel better, you can be more concentrated on the market without any distraction from your emotions.
10 Analyze and Calculate the Maths – Probability
For new traders, did you know your trading strategy win-rate?
After you know your number, maybe you will not feel the frustration and disappointment.
For new trader, did you trade in demo account for a couple months before you get in the real trading account? I hope the answer is yes.
When you trade in the demo account and have a consecutive profitable months, you can now try to calculate your win rate of your trading strategy. E.g. if you have a win rate of 50%, that means half of the time you will facing losing trade. This is also mean that consecutive 2 to 3 losses in trading is normal according with the win rate.
It is just like flipping the coin. You will not get the head alternative time when you flip it, but you have a 50% chance of getting the head each time.
When you know the number, you will know that according to your trading strategy, the consecutive losses is normal.
When it is normal, that means you will still profit in the long run.
But, make sure the losses is monitored and trading strategies are followed.
11 Live Your Life
Your life not just with trading.
When you lose or win a trade, hang out with Friends or Family, go and do your normal daily activity.
This is very important to you because your daily activity can balance out your emotions.
Trading is just like your full time job and your personal life.
When you have a good personal life, you will have a better condition and emotion to trade in the market.
When your personal life is well managed, you can do better in trading.
If you are stressed with the losing result shut down your PC and talk to others.
Do other things.
Back to the market when you have better emotion conditions.
12 Do Not Take Revenge Trades
Revenge trades is taken when we have no control of our emotions and actions after taking trading losses.
“Maybe this trade can help me to win back all the losses.”
When you have this kind of bad ideas, walk away from the screen!
Do not trade in a short period of time.
There will be a higher chances you will trade without following your trading strategy in this situation.
If you take the trade with the emotion-driven, you will lose more.
Some traders will revenge not only one time for their losses. They will gamble with the luck to hope that the next winning trade can cover all their losses.
Don’t be one of them, be the profitable one.
13 Think Long-Term, The Journey of Trader.
Okay, this is a psychology setting up for you to handle your loses.
Sometimes we just feel the pain, we know it’s the probability game.
This is a method I use a lot. Which is thinking long-term.
The psychology exercise is like this:
Says you are a new trader, you need to think and FEEL that you are already a successful trader in the future (maybe 5 or 10 years later). You have been through countless losses, with your good trading system, you have made it.
Then your mind switch back to present, you have a trading losses recently, you will now know and FEEL that the losses just the part of the plan to make you become a successful trader.
Now the minor setback will be FEELING like a small problem.
This exercise is to let you to master your own feeling.
In the same situation, how you feel often lead you to take a different decision and different action.
React like a successful trader make you a successful one.
14 Do Not Increase Exposure Risk Of Single Trade
Do not overexpose your capital in single trade.
Some traders will try to win back all the losses by increasing their risk percentage of a trade to get a higher percentage of return.
Yes, it may work.
But what if the trade loose again?
Increasing the risk exposure again?
This is one of the fast ways to blow out the total capital. It is very dangerous to trade with this kind of trading method.
To prevent this from happening, one can have a fixed risk percentage for every trade they trade. It is easier to follow than changing your maximum risk exposure all the time.
15 Be Comfortable With Your Trading Capital Size
Some new traders start trading will large capital without use to or master their trading system especially.
Be sure that you are comfortable with you capital size.
Capital size has a big psychology affection especially the capital is too “big” for you.
E.g. if your total saving is about $10,000, the feeling you trade with total $10,000 is different with the feeling you trade with $1,000.
16 Be Serious With A Small Trading Capital
Personally, I think a small capital will also affect the trader’s attitude during trading. It will make a person not to care so much about the losses they made.
Because it is just a couple bucks of losses.
Then they will have no initiatives to revise their trade and improve from the losses.
“If a trader cannot manage a small account, how can he trade with a large capital?”
So… they need to use a small capital account and train their trading’s attitude.
Be serious with the losses and learn from the mistakes no matter how small or big the trading losses will be.
17 Lower Down Your Goal
Slow it down! Don’t be needy.
Some traders have a “thigh” goal, example like wanted to have a certain high percentage of return every month.
Their emotions will be affected easily when they experience consecutive losses.
Then this will lead them to have many trading pressure and mistake judgement.
Make you goal to be more realistic, lower down your target of monthly return would be a better choice to decrease the intense feeling over the trading losses and the trading results.
When you focus on profiting in the market, you will lose; when you focus on trading with trading system, you will win.
18 Do Not Hope To Win The Next Trade
Do not hope to win, but plan to win.
In trading, using luck as the part of the trading strategy may cause a trader become a gambler.
Gambler trade with luck; smart traders trade with their trading system.
Plan to Win, do not be a gambler with ignorance.
Hoping should not be the part of your trading strategy.
19 Be Confident
Be confident with yourself after taking consecutive losses.
The most important key to have confidence is because many traders tend to quit after consecutive losses.
But quitting means you will have no chance to win in this game again.
If you are a new trader, develop confidence in yourself!
You can follow a good strategy and master it and trust yourself.
For the other traders who have a good past result and started to profit in the market should also be confident when you experienced losses.
The consecutive losses you meet is just the result of probability.
Be Confident. Trust your system. Analyze the feedback, optimize your system.
Be confidence and remove the self-doubt is key to success in all industry!
You can do it!
20 Revise What You Have Learnt and Continue Educate
Revise for what you have learnt in the past about trading is important.
It can avoid the mistakes you made in the past.
Especially with the mistakes in losing trades.
E.g. sometimes, I will forget to use the basic knowledge of trading. Even though I already can profit from the market.
So, I will reread the same trading books and read through my journal to refresh my trading knowledge so that I keep them in mind.
Refreshing your knowledge is important.
Especially when you have a long page of journal.
You can avoid the past mistakes by reading it.
Other than that, I think traders also need to continue to improve themselves with extra knowledge.
It can help you to understand the market in a different perspective.
Other than that, a suitable knowledge learnt can be adding into your trading system.
But just make sure don’t overcomplicated your trading system with the new learnt knowledge.
The most important thing to deal with trading losses is to overcome the forex trading psychology obstacles.
When you can manage your emotions well, that means you have a higher chance to become a profitable and successful trader.
Remember that losing is part of the trading game.
When you are able to cope with that, you will improve as a trader and also as a person.
And also, what you do in your personal life often reflect in your trading performance. They are related.
For My other Post:
If you are new to trading, I have a post about the pros and cons of trading.
Feel free to share to your friends that maybe interested.
Thanks for spending your precious time together.
Let us grow and learn together.