How FX Traders Should Manage Losses?

One of the things traders have to learn how to deal is losing trades. Although in theory, this looks like an easy process, once our emotional reactions kick in, we find ourselves overwhelmed and react irrationally. A loss can cloud our judgment and lead to a longer period of underperformance, reducing profitability, and create large swings in the account balance. However, there are some steps that if followed, will lead to be a better management.

#1 Take a break

When a losing trade occurs, the first thing to do is take a break. Maybe you didn’t analyze the market well or you didn’t use online information better. In either case, you must take responsibility and first figure out whether you’ve made a mistake. The worst thing to do is getting upset or angry at the market, opening another trade in the same direction as the losing one.

It does not matter if you need to stay away from your trading desk for days in a row. Until you are comfortable with the loss, each time you’ll enter the market your judgment will be clouded and thus the decision-making process won’t be as effective as it was before.

#2 Evaluate your emotional state

Before you start to trade again, it is very important to evaluate your emotional state. Are calm enough, relaxed, confident, and energetic? If the answer is no, then you’re not in the best shape to trade. Dealing with the markets is a challenging activity and you must be at your peak to do it. If a flight to safety will occur in July, markets will be volatile and for traders finding opportunities as well as timing them properly won’t be easy. Are you sure getting involved in the market during a volatile period, while you’re emotionally unstable is the right decision?

#3 Don’t think about the previous loss

Once a loss is settled, that’s the reality you cannot change. Don’t think about the previous account balance and that you need to recover the loss. The money is gone and now it is crucial that you start winning. This doesn’t mean analyzing losing trades is not a requirement. It is, but once all is said and done, a new trading day will be a new beginning, regardless of the previous loss. As traders, we must get comfortable with losses and learn how to deal with them in a professional manner. It’s a skill that will gradually develop if you are committed to trading efficiently.

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