Forex Pros Weigh In: How Do You Cope with Trading Losses?

By ,
Forex Pros Weigh In: How Do You Cope with Trading Losses?
Ouch.
Source: Flickr/katerha
We’ve asked traders, commentators and coaches how they cope with bad trades or losses. Here’s what they said.

Ed Ponsi, Forex Author and Educator, FX Educator

Everybody likes to win, but losing is part of the game. You can’t let it affect you. If it troubles you too much to lose, it can affect your decision making process. Knowing that fact helps me to put it behind me. They say you’re only as good as your last trade, but the truth is, the only trade that really matters is the next one, so forget about the last one.

Raghee Horner, Trader, Author and Charthacker TradeFuturesandForex.com

I have to determine what type of loss it was first. Just taking a loss can't simply be put into the "losers" box. Was I stopped out as planned ? In this case, the trade is NOT a "loser", but still a loss. Was it a bad entry to begin with that pushed me to pull the cord on the trade? Then that's clearly a bad loss. Was it something I missed? For example, something from the economic calendar, an unscheduled press conference, a geopolitical event or something else essentially fundamental.

Once I have determined the type of loss, I can take a better tack at 1) accepting it and 2) correcting it. For me losses come in groups as do my winners, and that's because I usually have a story (fundamental/psychological) that I have confirmed with technicals and price action and then acted upon. If the story was wrong or ill-timed, my stop-loss will spare me further pain. You never want to be at the "stop-loss of shame" where you were bullish because you were long rather then long because you were bullish. We can talk ourselves into anything. My stop loss and periodic losses should be the wake-up call. Re-examining my story behind the trade is how I will reassess and regroup.

Cory Mitchell, Forex Author and Technical Trader, Vantage Point Trading.com

I don’t define success by profit, but how I follow my plan. Every trader who has been around for a while knows that strings of losses occur. It is just a part of trading. Therefore, I try not to beat myself up. If I find I am getting emotionally involved in my trades, and having trouble with my discipline, then I step away from trading and take time off until I feel strong enough mentally to come back and trade how I am supposed to. The break may be days or even months - however long it takes. Similarly, if something in my personal life is really elevating any of my emotions, I typically back away from trading until I am back in a more analytical state.

Bryan Wee, Forex Blogger and Ichimoku Trader, Singapore FX Trader

If the long periods of losses are resulting in a steep drawdown in my account, I will take a break and review all the trades executed during that time. It is necessary to re-examine the trading environment at times, but I find that the market changed more frequently when I was intraday trading. On longer time frames, long periods of losses are usually caused by not executing on the trading plan.

Liviu Flesar, Forex Blogger and Trader, InnerFX

Taking breaks do wonders. After losing streaks I just stop opening any new positions and focus on trades history/log. I analyze my mistakes and most of the time I come to the same conclusion: I’ve made the same mistake or set of mistakes in all the last trades. I don’t worry about recovering the losses right away - that would lead to overtrading and irrational decisions. Instead, I just focus on avoiding the mistakes that got me into trouble.

It's like a diet: you just can't lose all weight gained in 1 year in a single month. If I'm down 5% after a losing streak of 10 trades, I don’t expect to recover in one or two trades. I plan to recover the loss in 5 trades, in best case scenario, or more. Patience is key here. When I am trying to recover losses gradually, I leave some of the good trades open for a longer period of time.

Jennifer Thornburg, Forex Blogger and Trader, Jennifer.bz

Expect to lose. It is going to happen. Either it will happen because the market fails my trade setup, or it will happen because I simply had a bad day and made mistakes. It could even happen when I was right, and the setup was right, but my timing was wrong. The worst thing that can happen is to have a winning streak such that you forget that loss is going to happen, and then you're caught off guard. Every trading system I use has a specific portion of the strategy dedicated to padding the account for loss. It's not a question of what to do if I lose. It's a question of where are my plans for covering the losses, so that I can keep my gains and stay in business.

Stay on top of the currency markets with our newsletters by subscribing to ForexDictionary's free newsletters.

About Andrew Beattie
Picture of Andrew Beattie

Andrew Beattie has spent most of his career writing, editing and managing financial content as well as more general web site material in all its many forms. He is especially interested in the future of search and the application of analytics to the business world. He has been a long-time contributor to Investopedia.com and is currently venturing forth on ForexDictionary.
 Full Bio