Whether you are an experienced trader or just a beginner, it’s important to know how to handle the losing trades you’ll inevitable have.
You probably heard that I recently started a trade room. Naturally, I was hoping to get off to a roaring start but unfortunately, things did not work out exactly as planned because I took a long trade in USD/JPY which turned out to be a loser. Let me share with you how I deal with losing trades.
One thing that I have stressed in the trade room is the need to keep your emotions on an even keel and in order to do this, a trader needs to deal with both losing and winning trades. In my opinion, being able to do mentally handle the downs and ups will help separate you as a trader from the majority of people who attempt to become forex traders-it’s the dividing line between professionals and amateurs.
The idea here is that you don’t want to get too happy with yourself when you have a winner or too down on yourself when a trade goes bad because both emotional states will ultimately lead you to make mistakes that will cost you in the long run.
Becoming too “happy” with yourself after you’ve earned some extra currency in your account will cause you to become overconfident and reckless. You’ll start to think about increasing the amount of lots you’re trading because you’ll focus on the amount you could have made if you had only been more “brave.” Then when you lose, you’ll wipe out the profits of several trades in one fell swoop.
You need to look at what you’re doing in terms of percentages. If you increase your lot size due to over-confidence you could find yourself in the situation of winning 75% of your trades but actually losing money in your account. The obvious truth is that if you can’t make money with a 75% winning rate, you’re doing something very wrong as a trader and you’re going to find yourself in a deep hole before too long. The real edge in trading comes from being able to at least stay at a breakeven point with the lowest winning percentage possible.
Conversely, if you get too down on yourself, you run the risk of becoming too scared to trade and you’ll miss the easier opportunities. I’ve found that over time, more is lost by indecision than by wrong decision. You have to realize that when you trade you’re actually betting on two things; direction and timing. Direction is relatively easy to get correct which is why many people can be demo trade fairly successfully. Timing is much more difficult because if the truth be told, there is a lot of random movement in all trading but especially in forex.
Top professional athletes have one thing in common-they have no fear. They’re never afraid to get into the game because they have confidence in their ability even after they lose but they understand that each situation is unique. They maintain a healthy respect for their opponent and they appreciate the fact that they will not win today based on what they did in the past but rather on the effort they bring to the present situation.
Letting your emotions swing too widely will cause you to get mentally burnt out. Avoid letting this happen when you trade to give yourself the professional edge.