Coping with Losses

Filed under: Learn Forex Trading |

This article is all about coping with trading losses in the forex market (it is not about dealing with the demise of the family goldfish!).  Since we’re experiencing a bit of a drawdown with our live trades at the moment (the first four trades of the year have been losses I think), I thought it might be a good topic to get into.

 

Coping with losses is never easy for any trader – but it certainly bites harder for the new or inexperienced trader. But why is this? Well, experienced traders have the added confidence of years of employing their method, and they know that it works in the long term. For the inexperienced trader, there is always that nagging feeling that their method is not sound. However, the longer you trade for and the more your equity curve grows, the easier those losses will get. For example, if you have doubled your money in the past year, and your maximum drawdown during that time was, say for example, 15%, then you are not going to lose much sleep over a 5% drawdown. However, if you have literally just started trading, and you lose your first five trades, each risking 1% of your bank, then you may be feeling uneasy.

 

One way to combat this, for the new trader, is to start small and build up your confidence. Once you see your equity curve going up, even if it is with virtual money, you can start to really believe in your method or system. Another good thing to do is to thoroughly review your trades and make sure that you have been making the right decisions. If you are trading well but making losses, then things will almost certainly turn around. But if you are making bad trading decisions, then your drawdown is likely to continue.

 

So always review your trades and keep looking at your positive equity curve for added confidence during drawdowns. No equity curve can move up in a straight line, so you would do well to remember that when things are not going well.

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