Winning is the goal of every forex trader. However, losing sometimes is also an inevitable part of this battle. Even the most successful trader loses quite a few trades. The key is knowing how to minimize the losses and learning how to deal with the situation. To win in the long-run, you need to know how to lose in the short-run while still remaining in the game.
When you lose the trade, the key is to learn from it. Analyze it. You do not need to do this right away. Sometimes a bit of distance from the actual trade can be useful. This allows you to be less emotional and able to analyze the trade more objectively. Acting too quickly and trying to take revenge on the market or entering into trades from a place of desperation is never a useful tactic.
How do you figure out what went wrong? There are a few key questions to ask yourself:
Did you follow your trading strategy? Maybe you’ve forgotten some calculation during the preparations. Maybe you’ve bent your rules and gone ahead with the trade. Or maybe you’ve made unnecessary changes after the position was open. Well, now you are aware of this, and your next trade will likely be a more precise one.
Are you satisfied with your trading strategy most times? It is okay that every trading plan has losing trades. Even the best trading strategy will lose in some trades. The key is to win in the long-run. This means your RRR (Risk Reward Ratio) is good and that you are trading with a lower risk.
Do you need to change your trading strategy? Before making any decision you should double check the two points above. If you are certain that you’ve followed your trading strategy and still the losing trade is not just one of the regular losses you can sometimes expect, maybe it is time for a change. Five consecutive losing trades, assuming that your implementation was perfect, is reasonable enough grounds to make a change.
Changes to your trading strategy can include:
Tweaking some of the parameters of your trading strategy: Back test the losing trades with different parameters, such as entry point, stop loss. Playing a hypothetical “what if” game and see what you get. Sometimes a small change can make a big difference., which could be all you need.
Switch to different currency pairs: This is harder to examine using losing trades, since each currency pair has its own “personality” and most likely form different chart patterns. But if your currency pair was moving sideways and now it has broken out and extended the range (or moved in opposite direction), perhaps your system won’t work any more.
Look for a new trading plan: Sometimes chart patterns change in all pairs, and in some scenarios, your system may not have been optimal in the first place. If you are certain that this is the case, you should definitely make a change. Refusing to admit that a change is needed will inevitably just lead to more losing trades. We are not trying to be righteous. What’s more important is to win. If the system doesn’t work, abandon it and move on to another one.
But what about your winning trades? Analyze them as well. Was the win part of your trading strategy? Great. Was it simply by chance? Feel lucky and humble. Many traders become euphoric after winning a trade based only on gut feeling. This, however, can be the fast track to burning out your account. Confidence is a must, but overconfidence, especially misplaced overconfidence, can be fatal.
Also read: 5 Most Predictable Currency Pairs – Q1 2012
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