Forex trading losses and how to minimise them

No trader ever wants to lose by choice and most of us are not endowed with the power of true foresight and a crystal ball. 

Losses are an inescapable reality of trading.  However, as human beings we are not brought up to readily endure losses and this can lead to self-destructive trading patterns which if not managed carefully can lead to extended losses.   Traders can find themselves quickly giving profits back to the market after building up their accounts over a long period of time, a highly frustrating predicament.

In this article we will look at some of the most common mistakes made by Forex traders.

Take a break from trading if needed!

Any trader who is going through a string of losses should take a step back and analyse the situation.  This losing streak can often be an open indication that something is going wrong with their trading strategy. As the saying goes “rest is not idleness”.

The markets will always be there…

Taking a break can help traders see what steps are needed in order to cut the losing run, before their forex account balance is adversely impacted. This is simple advice but how many traders ignore it?  

What factors can cause an increase in losing trades?

A string of losses can often be caused by many things including, stress, euphoria, a change of routine or other circumstances beyond a traders immediate control. It could however be something as simple as overtrading.

Move not unless you see an advantage; use not your troops unless there is something to be gained; fight not unless the position is critical. Sun Tzu

Identify what is going wrong with your trading

The important thing for traders is that any issues should be identified asap and corrected at the earliest conceivable opportunity. 

Trading can be very stressful and often the best thing to do when hitting a string of losses is step away from the computer and analyse what is going wrong.  Read through your trading records and look at what has changed during the losing period.  One approach to doing this is adding a section to the trading log which captures the traders “mood” and “state of mind” when a position is entered.

Do something about it!

If the trader been slipping into a routine where, for example, sleep is not being given the priority it deserves then something needs to be done to rectify the situation.  Give yourself another hours sleep and monitor the difference in how this impacts your bottom line. 

If you are having difficulty giving trading the time it deserves stop trading!  It’s not what many want to hear but you need to be on top of your game to make it in this business.

Think and act like a professional trader

True professionals take care of all of the little details and the aggregated end gain from this can be an exceptional performance improvement and great success.  The path to forex trading success is certainly dependent on continuous self improvement.  “Kaizen” as the Japanese call it. 

This self improvement approach is applicable to everybody from elite athletes through to professional traders.  Many of the trading losses I have observed over the years are attributable to the psychology side of things just not getting the attention it deserves.

Find the right trading system for you

The issues above can often also be attributed to the trader simply trading the wrong trading system.

If the trader is impatient by nature then a system that requires waiting for days to take profit is possibly not fit for purpose.  The trader can take time out and paper trade another approach based around a shorter time frame “entry to exit” window.  The psychological makeup of the trader is often not aligned with the trading system.  If the trader is not at ease with the system and its win/loss ratio etc they are potentially destined to discover failure as they struggle to find winning trades.

The answer is simply to distinguish the components bringing on losses and counterbalance them ahead of any further failure.

It’s not always a problem with the trader or strategy

We need to analyse our trading results and strive to improve any area that we can.  It is also important that we take it easy on ourselves if we are following the system and hitting a string of losing trades.  These losers are part of the game – a business expense no less.  Sensible money management should make sure the trading strategy accommodates these “business as usual” losses with minimal detriment to the account.