Losing sucks, don’t it?
Sometimes:
- It feels like the walls are closing in. A tightness in the chest, gasping for breath.
- It makes you angry, or perhaps you feel an underlying sense of frustration.
- You just feel like shelving it. Damn this Forex game!
But losing is not something to get wound up about. It’s important to view losses as a cost of running your trading business. Even the best traders don’t win all the time.
Instead, take some simple steps to get yourself back on track.
Make sure the risk is handled
First, make sure your risk is under control. You should know exactly how much you are prepared to lose, and what to do when you lose it.
By defining your worst case, you can remove the associated anxiety and get on with the business of trading. For example, I risk 3% of my account per quarter. If I lose it, then I simply stop trading.
Even if I lose, I know everything is still under control. Even if I am down 3% for a quarter, or 12% for a year, it’s not a big deal… I’m still in control and can remain quietly confident.
Conversely, if you have no predetermined loss limits, this will generate uncertainty and fear. These emotions will not help you to make good trading decisions…
Make yourself happy and relaxed
Trading has a lot of parallels to professional sport. When you are confident, you play with freedom and grace. Winning becomes a mentality.
But when you are under pressure, you tighten up. Instead of playing what’s in front of you, you worry about making mistakes. This mindset, of course, means you end up making more mistakes (and losing games).
To stay “loose”, it’s important to be relaxed and happy. Performance suffers when we worry too much, or focus on making money before the overarching passion for trading.
In other words, enjoy the process. You’ll be less afraid (and make less mistakes) if you approach the markets without tension and genuinely love what you do.
Trade smaller and more often
One strategy for a trader in a losing streak is to increase the number of trades, but to cut the position size back.
Perhaps you are out of sync with the market’s rhythm, in which case you can get your feel back by simply trading more frequently.
Make sure you do this in a controlled manner, keeping your losses small. Alternatively, you could use a demo account for this purpose. (I do recommend you stick with real money, though, if possible.)
Dive deep into some reading
It may be helpful to immerse yourself in reading about the markets for a period.
Making sure you know what is going on will help give you back the confidence to trade with conviction.
Focus on your best trades
One size does not fit all, and the above approach of trading more may be the wrong one for some traders.
Instead, it could be best to cut back your trading and focus on your very best ideas. It is quite common for losses to come from over-trading. If this is you, trading more won’t help.
It might pay instead to reduce the noise, scratch the so-so trades, and pay razor-sharp attention to only the highest quality ideas.
Identify your errors
One of the best ways to get back on track is to review your previous trades.
See if you can figure out where you have been going wrong. It might be something obvious like poor stop-loss placement, or not waiting for your setup before triggering your entry.
Ideally, you will have been keeping a record of your best trades as well, so you can compare those to the losing streak.
Often enough this process will be enough to jump start your account.
The next trade
My final word of advice for the struggling trader is this: make getting back on track a bite-sized process.
Instead of being a worrywart, just focus on doing the next trade well.
Don’t just make sure you have a good set-up – make sure you get yourself if the right state of mind (and body), with a positive expectation.
Ask yourself the question “what more do I need to know, in order to have confidence in the trade?” and then answer it.
Follow your trading processes in full. Ensure the downside is handled. Record your results.
And, if the next trade is a loss, in the words of Bobby McFerrin (and sung by Bob Marley):
“Don’t worry, be happy.”
There will be another winning trade just around the corner.
About the Author
Sam Eder is a currency trader and author of the Definitive Guide to Developing a Winning Forex Trading System and the Advanced Forex Course for Smart Traders (get free access). He is the owner of www.fxrenew.com a provider of Forex signals from ex-bank and hedge fund traders (get a free trial). If you like Sam’s writing you can subscribe to his newsletter.
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