Trading losses are an inevitable aspect of the world of trading and investment. Almost every trader will encounter a trading loss that will impact his trading attitude and find it hard to bounce back after. Except for the most experienced and successful traders, they control their mental perception of such situations. It requires experience and a solid trading mindset to contain your emotions, learn from mistakes and never let any of them drive the next trading decisions.
Tips to Handle Trading Losses
Accept Responsibility:Own your losses and admit when you make a wrong decision. It is healthy to stay honest with yourself so that you can avoid repeating losses and mistakes.
Take a Break:After trading losses, you are more likely to make irrational trading decisions if you are overwhelmed and stressed. It is ideal to take a break when you feel that the market is against you. Take some time off trading and review your trading activity. Start by sorting out the weaknesses and mistakes to work on them.
Analyze your Loss:Successful forex tradersare always concerned with performance analysis. Not only good trades but trading losses should also be analyzed as well. When you do this, you can figure out the weak points to work on and wrong decisions to avoid later.
Assess your Exit Strategy:When you struggle with a severe trading loss, its better to reassess your exit strategy. If you hold on losing trades for long, then you should focus on cutting your losses early.
Keep a Trading Journal:Keeping a detailed trading journal will help you identify what needs to be improved and what you should stick to. A trading diary should include trade details including size,entry, and exitpoints in addition to targets and risks. Writing down your decisions and emotions will also be more helpful. The more detailed a journal is, the more insightful it is.
Avoid Revenge Trading:Feeling frustrated after incurring trading losses is inevitable no matter how experienced a trader is. This feeling may push the trader to make irrational decisions leading to bigger losses. Revenge trading exists, and you have to be aware of it, work on it and contain it. Never let your feelings of anger and frustration take control of your decisions. It may be hard at first, but with experience, you should have a better command of that.
Move On:After reviewing your performance, analyzing your losses, and accepting your mistakes it‘s time to move on from this loss and prepare for what’s next. Get back in the game and regain confidence.
Turn Your Trading Losses Into Success
Trade with a Plan
Thetrading planis a comprehensiveand strategic approach to follow based on goals, trading strategy, and risk level. It is a decision-making method for a trader that helps in deciding what to trade when to trade and determining the size of a trade. It is simply a designed framework that guides the entire trading process.It is usually personalized to suit individual trading objectives. There is no absolute plan to be followed, however, there are different aspects to consider when developing a plan. These aspects include the trading goals, risk tolerance, investment capital, psychology, the motivation for trading, trading tools, and risk management rules.
Developing a plan to serve as a guiding framework is very crucial to achieve consistent profitability in trading. It is pretty much like a road map that keeps you on track to your trading goals. A good plan will help you in making rational trading decisions, by sticking to its rules. Benefits of having a plan also include:
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Discipline:having a plan with a predefined set of rules will help you maintain discipline in trading by sticking to these rules, and keeping you from letting emotions control your trading decisions.
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Trading with ease:by sticking to a plan, you wont feel stressed as you know what should be done. A clear and precise plan lays out all the needed criteria that must be met before making a trading decision.
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Performance improvement:keeping a journal of your trading activity is a key component of a successful plan. It helps in assessing the performance of your strategy, thus improving the weakness points to enhance your trading performance.
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Objective decision making:since trading success is basically based on making the right decisions, having a plan can help in making objective trading decisions, that will give you more confidence with less emotional engagement.
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