How can avoiding loss affect you?
1. When traders go through a streak of loss, it affects them psychologically. They get emotional and thinks that the market is doing this to them, which in turns leads to them losing confidence in their very own trading system.
2. When a trader gets into a loss, he tries to avoid it and keeps on moving his stop loss, so instead of cutting the loss short he converts it into an ultimate disaster and due to this he may lose his entire account.
This often creates a negative sequence of pain and it only gets worse with time. The next time he notices an opportunity to get into a trade, he will ignore it due to the fear of losing and if this trade which he ignored turns out to be a winner, he gets angry for not taking that opportunity and this makes him do something which he will regret and takes him away from his trading plan.
3. Trying to avoid loses can also lead to inappropriate trading behavior. By this what we mean is, if you do not cut your losses short and let it run and even if it somehow turns out to be profitable, you are augmenting an inappropriate behavior which will lead to a disaster in the long term.
How to deal with losses?
1. Predefine your loss.
As we discussed earlier that a loss is something which one cannot avoid, so the best way to counter it is to predefine what a loss is in any particular trade, by this what we mean is that you must create a set of rules which would tell you when a trade is no longer valid. So as soon as your chart tells you that your setup is now invalid, close the trade right there.
2. Accept your loss.
The moment you get into a trade, always tell your mind that there are chances of this trade to go in loss. When you continuously tell yourself this and start accepting losses, you get immune to the pain of loss and now that you are immune to it and your mind agrees with the loses, you won’t try to avoid losses instead you will try to manage it naturally.
We often hear traders say that do not keep looking at the chart, try to avoid looking at the chart after entering the trade as your emotions kick in, or else you may end up doing something horrible, i.e., cutting trade too short or opening too many positions. We believe this is the wrong way to deal with losses, by doing this you are just hiding away from emotions, you are not dealing with them, and as long as you continue to do so, you won’t master your emotions.
It is essential to deal with your emotions, don’t run away from it instead confront them actively and get used to it, make yourself immune to it, by doing this you can master a critical trait of a successful forex trader, you can master your emotions.
3. Only invest the amount which you can afford to lose.
The forex market is full of opportunities, so even if you miss one you will get another but what’s important is that you should be present in the market, you should have money in your account. So, always calculate the risk of a particular trade and then choose a lot size according to the risk you are willing to take.
This risk should be such that it does not affect you even if you lose the trade after calculating your risk place a stop loss.
4. Take a break.
If you are on a losing streak, don’t try to fight the market instead take a break from charts and close all your losses. When one is on a losing streak, their mind is controlled by emotions and in trading emotions often leads to destruction. So, the best way is to take a break from trading, for a few hours or days, do whatever you like to do, play games, listen to songs and then when your emotions are under control try to analyse what went wrong and then begin with your trading again.
Always remember the forex market is full of opportunities so as long as you have money in your trading account, you are making yourself available to learn the best possible way to let your profits grow and also open for the next opportunity which makes the chances of increasing your account pretty high, so always cut your losses short. Because if you do not cut your losses at all, sooner or later you will have to lose your account.