In today’s article, I am going to discuss about why is it so important to learn losing in forex trading? It might sounds funny, but believe me, this is a must-learned lesson in order to become a mature trader who truly knows how to trade well. No one will be making money from the market if they do not understand the importance of losing properly and how to do it. For those who think that forex trading is all about “fast money” without any lose, you may stop reading now. For the rest of you who really look into generating consistent profit by trading, please make sure you read through this article and understand the concept behinds.
So, let’s begin.
Understand and accept that losing is part of trading
Many traders are afraid of losing or their stop loss (SL) is being triggered. Sorry to say that, losses are part of trading. If they weren’t, every trader could have generated huge profit from trading or they would be billionaire. As a trader, we must first treat trading as a business and losing is your running costs. As long as your revenue (TP) is more than ur losses (SL), you will be profitable for long run. A simple fact of trading is you are going the have losing trades no matter how skillful are you in trading the financial market. If you failed to plan your trade and calculated possible losses, you are most probably going lose all your capital eventually. However, when you able to accept that losses are actually part of trading, you will slowly learn how to manage them and reduce its probability.
Manage your risk instead of avoiding
There are many saying that a good trader will know how to avoid losing. But in my opinion, a good trader must know how to manage the risks instead of avoiding it. Do not ever try to avoid the loss or eventually it will catch up to you. Let’s say you are lucky enough to avoid this time, you will be building a bad habit of not putting stop loss and this will definitely result in a huge loss someday.
How can I manage my risks?
I personally found two common scenarios on traders who always try to avoid losses, firstly is they always expect to win on a trade but in fact they lose. Secondly, they will always lose more money from the money they planned to lose initially. All these traders share the common bad habits, i.e. not putting a stop loss or keep changing their stop loss and hope for a reversal. You have to firstly accept the fact that nothing is “for sure” in the world of trading and understand that any trade can be a losing trade. In others, do not put any expectation in your trade no matter how many confirmation you have or how nice the charts are forming.
Besides, we should only trade on market show us, but sadly to say that most of the traders are trading on their expectations and assumptions. Do not let your ego to take over you and ignore what market is trying to speak. Market always speak in its language, which is price action (check out our price action setup here) but traders tends to listen to their own. For example, when market tells us to quit by showing reversal signal, we should cut losses instead of holding our trade and praying for another reversal.
A very good example on risk management is always fix the amount of your stop loss and adjust your lot size accordingly. For example, I am going to risk USD 50 for every trade and there are 50 pips from my entry price to SL level, hence my lot size will be 0.10. Besides, it is also important to always have at least 1:2 risk reward ratio in every trade. By doing this, we will achieve long term profitability although we have more losing trades than the winning one.
After 11 Days …..
Trading is always the game of probability and we will be in long term profit as long as the wins are more than the losses. There is no such things as zero losses and the only way to achieve winning is to control and manage your losses. That’s why, it is always important to have proper trading education or practice before you start trading with real money. Majority of people still have a mindset that trading is similar to gambling as there is only “buy” or “sell”, however, with proper training provided, the probability of losing can actually be decreased. Click here to check out on our coaching services. When a trader is able to shift their mindset from avoiding losses to managing losses, and from expecting winning to accepting that they won’t win every trade no matter what, they will then begin to learn how to drive their business (trading) for long term.