Even if you have not been trading for long enough, you are probably already aware of the fact that one of the most important steps to achieving forex success is maximizing profits while minimizing losses as much as possible. Even (or especially) if you are a forex veteran, you have probably experienced your fair share of losses.
However, launching successful forex trades is one thing, but recovering from a nasty streak of losses is an entirely different animal, as the latter requires a different mentality and set of skills. Luckily for everybody involved, we have comprised a list of actionable advice that will help you recover your mojo. Here is how to bounce back from forex losses.
On the Dreaded Day
If you happen to be on the verge of a huge losing trade and you are looking for ways to save the situation, you should get out before things get worse. Even if you do have a slight chance of recovering, it is not worth pursuing if you risk losing your finances.
Every trades has a bad day from time to time – there is no way around it. The general rule of thumb is to not let a bad day dwindle you’re the profits you would make on a normal day. For example, if your average winning day ends with a $700 net profit, do not waste $800 trying to get out of the bad trade – the better approach is to focus solely on damage control.
Admittedly, a big loss can cause a storm of inner emotions, from anger, confusion, frustration, fear and self-hate – this is totally natural and no trader with experience will blame yours for it. But your focus should be getting past these feelings as soon as possible and start the next trade with a clear head, with no leftover negative feelings. In this way, your next trades will surely be more profitable.
Understand the Nature of Your Loss
Now that you have (hopefully) prevented any further damages, it is time to figure out the nature of your loss (or losses) in the market. There are two main types of losses:
- Emotional losses. The name is pretty suggestive – these are losses triggered by being overly-emotional, and it includes losses caused by over-trading (spreading your finances too thin in the hopes of hitting too many birds with one stone) or over-confidence in your skills.
- A normal loss. This is caused mainly by statistical issues related to your trading strategy. More specifically, it is caused by a methodological or strategical failure. There is also the fact even if you are trading responsibly and consistently, a certain percentage of your trades will end up in failure. No strategy is 100 % guaranteed to work, so you should not stress on this too much.
Once the dust has settled and you know the damage, it is time to take a step back and asses the situation. Regardless if the loss was small or big, isolated or part of a long stretch of failures, this process is important to go through if you want to learn from your mistakes.
If the situation is the worst possible – outright financial ruin – there is nothing much you can do other than taking a break from trading and returning once your finances are ensured. Do not dip into your savings or take debt to restart your forex career, as this will create enormous pressure that will certainly lead to you making worse and worse decision, creating a vicious circle that is very hard to escape.
Once you have done that, it is time to advance to the next step, more specifically, accepting responsibility. While the temptation to blame the loss on nefarious market schemes and fluctuations may be too hard to resist even for the most seasoned forex veterans, on the long-term, it will cause only bitterness and even lead to overconfidence.
So, accept responsibility and try to figure out what went wrong and what you could have done differently. This will not only reduce the chances of this scenario occurring again, but it is also a healthier process than sucking up the loss and bottling up negative emotions directed at the market and other traders.
Go Back to the Demo
Before cringing at this suggestion, hear us out first – going back to a demo account might not be the biggest of ego boosters, but there is no shame in going back to square one and practicing until you get back into your rhythm. Nobody is saying that you should act like you have no prior experience – because you have tons of it, but it has not worked out for one reason or another. So, the best approach is to go back to a demo account with professional trading terms and good services.
The one thing you have to remember is that the market will always give you the occasional kick in the head, no matter how experienced you are. Even the pros are not protected from this happening. However, the difference between a pro and a rookie that goes through a streak of losses is that the veteran knows that they have to build back their confidence and hone their skills before making a full return to the market.
Focus on What Made you Successful in the First Place
If you have been trading in the forex market for long enough, you have certainly had your fair share of wins. The course of your typical forex trader is almost an archetype – when you started out, you were likely cocky, but as the market realities unraveled themselves, you have learned how to build healthy confidence and honed your strategies accordingly.
This feeling of healthy confidence is obtained by taking on difficult tasks with no absurd expectations, and getting better at doing those tasks, not necessarily accomplishing them. Confidence comes as the positive results of our hard-work start showing.
So, after a big loss, you should take a step back on focus on your trading plan, and figure out what made it successful, and what elements caused it to fail this time around. Plus, try to see the full side of the glass – a string of wins can make us feel lazy. A big loss can be a serious wake-up call, and more often than not the only thing that incentivizes traders to get better.
Experiencing your first big forex loss or a string of failures can be tough, but anybody can bounce back with a little dedication as self-restraint. If you find yourself in this situation, try to focus less on blaming the market or other people and more on retracing your steps, making adjustments to your strategy and keeping your emotions in check. Do this, and you will build back your confidence and finances sooner rather than later.