Taking the Losses While Trading

Here and now, we begin our education series for all traders. This series will be useful for newbies and experienced traders alike and though we would be dealing with FX here, whatever is
taught here holds good for FX, stocks and all instruments. As anyone who has traded would vouch for, trading is only 10% skills and the rest 90% is all about your mental state and emotions. One of the biggest mental blocks that traders usually face is about taking losses. No trader in the world likes to take losses.

Every trader in the world loves to hang on to losses, in the hope that things would eventually turn around in his favor in due course of time. And sometimes, the trade does turn around. When the trader sees a few of his loss making trades turn around to recover his losses, or if he sees that his trades, where he has lost, would have eventually turned in his favor, he fixes in his mind that all trades will eventually turn in his favor. So, next time he sees a trade going into loss, he holds on to it, believing firmly that it will reverse. Unfortunately, only some trades reverse. Most dont. Or they do reverse but by that time, the account is blown. So, maybe its just a margin problem? Or maybe its just a lot sizing issue? Maybe, if he had taken a smaller trade size, then the price would have reversed and his account would not have blown? Lets consider some points to see if its a trade size issue or something much bigger.

Most of the time, when we hold on to trades that continue to lose, it basically means that you either didnt have a trading strategy at all or you are not following the strategy that you have. No trading strategy in the world would allow you to hold on to losses in the hope of the trade turning back. So, if you continue to allow your drawdown to pile up, it basically means that you are not following your strategy and this in turn means that you are no longer in control of the trade. If you are not in control of the trade, then it means that the market is the boss of your trade now. You and your trade are at its mercy. When that happens, you are just reduced to a powerless, emotion-filled wreck. You feel happy when the market moves in your favor. You feel sad when it moves the opposite way. The market turns and teases and it plays with your emotions. Thats what happens when you let the market control your trade.

This is just one part of the story. What this also does is that it prevents us from taking other trades. Trades that could have been profitable. Trades that could have been easier to trade. We are either too focussed on the losing trades or we do not have enough money to take new , or we feel that these new trades will add to our existing losses and we simply are transfixed on the losing trades and do nothing. So, these losing trades not only add to our losses, they also prevent us from taking easier trades. It may so happen that we could have cut the losses at 100 pips and could have regained those 100 pips in 1 or 2 trades within a day or two. But we do nothing and we allow the markets to just do what it wants to.

We become an emotional wreck, sitting in front of the system and doing nothing but watching the market. We cant think of anything else and we cant put our mind into doing something else even if we want to. This is just not worth it. Trade can be much simpler and straightforward than that. Stick to your strategy, take those losses and you will see that your trading begins to improve automatically. It saves you a lot of money and time and prevents you from becoming emotional. It makes your trading work !