When it comes to forex trading, it has never been easy for the forex traders to trade without making big losses at some point. It is very common especially during the first stages of traders’ trading journey. At one moment in every trader’s life let it be the so called professional traders, they traded on this belief, holding on a losing trade to turn around to their desired direction.
The problem is that traders want to be right about the next market direction always which is not the case. Traders hold onto losing positions with a belief that the market will come back at least to the price they entered so that they close at a break-even. But most times, this never happens. At the end of the day their accounts are wiped off or liquidate their trades with big losses.
Holding on a losing trade, closing your positions at break-even or with a small profit happens due to fear to accept loss. When you fear to lose, you end up losing more instead of growing your account.
The experience of a newbie trader in the forex market.
After making a big loss on a trade, you don’t want to lose more. You want to make more so as to recover back the lost money on your account. You don’t hesitate to take the next opportunity available. This time you are very sure the trade will work-out and has a nice reward.
To your disappointment, the trade is 30 Pip off your entry level as if it’s hunting your stop loss. Because you want this trade to work that bad, you move your stop loss further or remove it completely as you wait on the trade turn around.
Later, you realise half of your account is already gone. Thinking about how the previous trade ended, you panic and closeout the trade in regret. You cannot believe what just happened.
When it comes to leveraged trading, there have never been truer words said. Traders who want to hold onto losing positions “until they come back” to the price they entered may never see it happen. Rather their accounts are always drawn down to zero or in big losses.
Most traders think they will never let a position go against them that far, but it does happen, and there is no assurance that the market will come back to your direction after a pull back, causing the trader to close out the position with a very big loss.
Another trade in the market,
After making all the analysis, you are so convinced to have landed on a jackpot this time. It has it all. According to your setup, the trade has a reward of 4 at a risk of 1.
As soon as you take position, your trade moves almost half-way to target profit. You are excited like a groom waiting for his bride. A few pips to hitting your target profit, price starts to resist and pulls back but you want a full reward, so you wait for it to retrace back. The next moment, it is 15 pips below your entry point. You can’t believe your eyes. What a hell just happened?
Hands in your nose, you start praying for a break even because you cannot afford closing in a red after being excited by the blue. Lucky enough, you manage to break-even but you are full of regrets. “I wish I had closed it then”.
Staying long in a trade is too dangerous because you never know when the trend is going to reverse. Be aware that anything can happen in the market at any time, no one knows when. Aim at setting targets that are achievable but not very far from the entry point.
We now move to your next trade.
After what happened on the previous trades you lost, you are not even sure whether you should keep trading or quit. You are too scared to watch all your money go to the market. At this time, you no longer trade like before.
Fear takes control over you and you are scared of losing again. You now opt to use a very small size and close your trades early in very small profits.
So in order to protect the potential profits, you will monitor the trade very closely. Glued to the screen, all of a sudden a pullback occurs after a very strong move to your favour. “Hey! The price was going your way but it’s reversing! It’s better to close than wait for everything to be wiped out. Do something!” you are closely watching.
As soon as the candle closes in the opposite direction, you close out the trade before reaching your target profit. After a while, you watch a same trade move to 300 pips after closing it. You get frustrated, lose confidence in yourself and at times start to think that the market is always after you.
How do you know you’re on a losing side of the forex game?
If you have averaged down losing positions before, chances are it may have worked in your favour. The problem is, the one time it does not work in your favour you will blow out your account. Every time you “average down” and succeed, you have actually closed out a trade pre-maturely in a small profit.
It is not any different from cheating and gambling. It only ends once, and when it does, it’s over. This simply means the moment you chose to hold a trade normally you either wipe off your account, stopped out pre-maturely or make money and then give it back to the market. This is due the influence of greed, fear, regret and revenge.
Trading in regret.
I wish I had closed that trade
The next trade you take, you are likely to close it out in small profits before reaching your target because you are scared the market might turn around and wipe off your already made profits. If you keep closing out trades prematurely, you will never grow your account. You will only trade to pay back spreads.
Why did I take that trade?
Under this circumstance, you will always hesitate to take on another trade thinking it may also fail hence missing out on a good opportunity. Or you are likely to either take trades late chasing the market, entering a trade on its reversal point thus making more losses.
If only it could get back to break even
Wanting so much to break even is a character for greedy traders. When you stay in a trade for long, wanting to exhaust the whole price trend in a single trade, it may not do you good rather than giving back your money to the market.
The market knows no one and you can never be sure where it will reverse from. When you realise you are this kind of a trader, know you will always make money and give it back for the market.
Trading to break-even is a result of staying long in a trade and failing to accept loss. As a result, it may lead to a big draw down or blow down your account.
Trading without a stop loss
When you trade with no stop loss, you expose all your hard work to a greater risk. Anything can happen in the market and the market gets more volatile. This is when you will receive a marginal call that your account is actually no more.
Trying out different strategies.
When you trade trying out different strategies, on a good day, you may make good profits but when the market goes against your favour, you are likely to make a large loss.
This is because you don’t know what to do in case a trade fails. More to that, you do not know the strategies winning rate.
Trading randomly trying out different strategies will not give you chance to trade consistently rather it will cut your trading life short.
Being in the market all the time/ running after the market.
You realise you are always in the market trading. Making it worse, you hold several trades on the same pair or related currency pairs.
In case anything goes wrong, all your trades go red and you have big losses for yourself. On other occasions, you trade chasing the market because you never want to miss-out anything. Without knowing you are actually entering a trade on its pullback or reversal and your stop is taken out in a blink of an eye.
Being in the market all the time does not make you a consistent trader nor a forex trader. It makes you less a gambler but a loser. Trust me, you will only profit by chance only on one trade out of the many trades you are taking. With this you will not last long till your account is down.
Failure to accept loss.
Holding on to losing trades for long.
Traders stay in losing positions for only two reasons. Either they don’t want to be wrong about the market or they don’t want to lose money on the trade. Sometimes it is a combination of both. Regardless of which one it is, it causes traders to stay in positions that are going against them.
If a trade goes against you, the market is saying you are wrong. If you continue to hold onto a losing position, you basically imply that the rest of the market is wrong and you are right. A single trader’s decision cannot overturn all the other traders’ decisions. If you are to rely on that, then you will always end in larger losses.
How to overturn big losses to big profits
You Must Be Able to Admit When You Are Wrong and Take a Loss
Being able to admit you are wrong and take a loss is the first step in the journey of successful trading. No one is perfect in trading. Taking a small loss is a minor victory in trading. Being able to let winning trades run and exiting losers for a small loss is what it is all about. However, you can’t get to the winners if you take big losses.
It is OK to be wrong. Actually, it is great to be wrong. Why? Because if you can’t be wrong, you’ll never be right about the markets. Trading is about taking risk and managing risk. The trader who can exit a position going against him early is giving himself the change to win big on the next opportunity.
Cutting losses fast and letting winning trades run.
Instead of cutting losses fast and letting winners run, beginning traders seem to do the exact opposite. This is something not easy to do but if you want to profit in trading, you have to try.
Practice more on using risk management on your trading strategy trading on a demo. Learn how to identify a failing trade so that you are able to cut your losses early on failing trades. Know when to take profit and always set achievable targets for your trades.
It is not too late to change. All you need is to be a disciplined trader, have a trading plan and trade following your plan. Leave your trades to run and close only when it shows signs of a failing trade to cut on losses.
Place Stops loss
It is very important to give a trade enough room to work out after entering a position, but also must have stops in case the market moves against you. All traders need to define this risk parameter BEFORE they enter the trade.
You need to know what the risk is and make sure you are comfortable with the risk in case you are wrong about the direction of the market.
When a trade goes against you and the market keeps on going against you, it is very difficult to make a clear decision.
The fear of losing money is the greatest factor in the psychology of trading. It causes traders to see things irrationally, as they do everything possible not to take a loss. This is why it is so important to define the stop loss parameters before you enter the market and stick with it.
In case you get into a trade without a stop and the trade run too far against you, the best thing to do is exit. Getting out of a losing trade relieves stress and allows you to make quick good decisions. Once you are out of the trade, you can take on more good opportunities.
Having a trading plan
Once you come up with a trading plan, it simply means you now have a designed strategy you can follow to trade.
A trading plan contains, a strategy in form of guidelines and the rules to follow when in the market. Learn what is on your trading plan, practice it always and trade only that. That way you will not only trade consistently but also last long in the game of trading.