Today’s lesson will be on ways to deal with the emotion you feel after losing a trade. As I’ve said many times before, it is impossible to win every trade you make in the Forex market, trading is a game of odds and we must strive to keep the odds on our side as much as we can to be successful. Accepting that there will be some losing trades is the first step to success as a trader – though it comes with some more than undesirable consequences. Losing a trade is never a pleasant experience, even for the most experienced traders. It is a difficult thing to come to terms with, especially when you are new to the Forex market. You need to learn how to deal with the emotions you feel when you lose a trade and have a decent plan to help you keep things under control and remain focused on your predefined trading plan. Contrary to the title of this trading lesson, not everyone feels the same emotions when they lose a trade. I personally feel anger, but others may feel sad, disappointed or even embarrassed. In this lesson I want to give you some advise about how to deal with the vast array of emotions you might feel when you lose a trade and I want to teach you how you should feel and how you can adapt your trading style to ensure you maintain the right emotional balance in the unfortunate event that you lose a trade in the market.
Anger
Anger is typically what I feel after losing a trade. I often feel angry that the market did not move the way I wanted it to, sometimes I feel angry because I broke my trading plan (yes even professional traders break their rules from time to time) and sometimes I feel angry because the position was in profit and I let it slip away. It doesn’t really matter why I feel angry, what matters is that I’m aware of the emotion I am feeling and I can start to address it in a sensible way. Firstly, do you think an angry person is going to be a good trader? Obviously not; in which case I should not be taking new trades whilst I am still angry. Therefore, I often take a break from the markets after losing a trade; I like to give myself time to calm down. I don’t even update my trading journal straight away, I take time to consider what happened, I think about whether there was anything I could have done differently and I determine who I’m actually angry with. In most scenarios I’m just angry that things didn’t go the way I wanted and upset that I lost a bit of money. But I review my plan, I make sure I acted according to my rules and I update my trading journal once my emotions have settled and I have a clear understanding of what happened and how it could (or couldn’t) be avoided in future.
Disappointment
It’s perfectly natural to feel disappointed after losing a trade, especially if it was a trade that moved into profit before hitting your stop loss. Remember, your job as a trader is to maintain a profitable trading account and when you lose money it obviously makes it harder to do this. You must think of losing trades as simply the ‘cost of doing business’, this should help you feel less disappointed when you lose. Trading Forex is a business and in many respects it is exactly the same as every other business. If you think of a shop owner he has lots of costs associated with his business, he has to rent the shop unit, buy stock, pay his payment services provider to accept card payments and much more. As traders our only costs are the fees we pay our brokers for executing trades and the money we lose when we make a bad call in the market. A shop trader does not feel disappointed when he buys some more stock, he sees it as an opportunity to make more money for his business. If you feel disappointed after losing a trade you should remind yourself that you had to take that trade to give yourself an opportunity to make money. Perhaps on this occasion it didn’t work out, that’s life. Stick to your plan and practice good money management techniques and you will give yourself an excellent chance of making sure your winning trades outstrip your losers. Just like a shopkeeper sells his stock for more than he pays for it – good money management will do exactly the same for your Forex trading business.
Embarrassment
I personally never feel embarrassed if I lose a trade but I know of other traders that do. I guess this comes from the fact that money is such a scarce resource around the world. So many people work so hard to earn a living decent enough to support their family and enjoy life with the people around them that it can be embarrassing if we make decisions that result in loss of our hard earned capital. What you must remember is that you are a businessman (or woman) and every now and then you will make decisions that don’t go your way. You must not feel embarrassed about losing money in the markets if you are following your rules and trading like a professional trader. If you do feel embarrassed it’s of paramount importance that you confront your embarrassment and don’t just brush the decisions you made under the carpet. If you do not confront your decisions and seek to analyse what you did and how you can improve in the future you will have a much harder job on your hands becoming a professional profitable Forex trader.
How Should I Feel?
You should feel content. As crazy as it might sound, if you are doing everything right you should feel completely comfortable with having the occasional losing trade. Now don’t get me wrong, I’m not saying you should be pleased, happy or even ecstatic, I wouldn’t go that far. But if you have a good set of trading rules and you’re sticking to them religiously you have no reason to beat yourself up just because the market didn’t move how you expected it to. The market won’t always do what you want and sometimes you will lose trades. If you adopt a decent price action trading strategy and focus on trading only the higher timeframes you will give yourself a very good chance of making sure you win more often than you lose. Feeling content should simply mean you know there is nothing you could have done to prevent the trade in question from being a loser. If you do not feel content after a losing trade there is a high chance you took the trade on false pretense. You either did not act in accordance with your predefined plan or you acted off the back of emotional reasoning rather than logical and technical analysis. Obtaining the feeling of contentment after a losing trade will be a big leap forward for you in your trading career and massively help you on your way to becoming a professional Forex trader.
An important thing to note though is; you should not feel content for the sake of feeling content. If you did not follow your plan or you did not act according to decent trading rules you have every right to be angry and annoyed with yourself – and indeed you should be. Don’t trick yourself into feeling content when you shouldn’t, if you have broken your rules you need to remind yourself not to do so in future.
How To Achieve Contentment
If you’re a regular follower of my website and trading lessons you might have already worked it out by now. You need to start by having a solid trading plan and predefined strategy. Without this you will not able to feel content when you are unfortunate enough to make a losing trade. Your strategy gives you a set of rules to follow and provides the ability to assess the quality of the trading decisions you make. If you are able to do this, and able to confirm that your decision was rational and founded in technical analysis then you will have taken the first step towards feeling contentment with a losing trade.
In terms of practical steps you can take, you should be keeping a trading journal of all of your decisions you make in the market. This should be used to record your trades and the outcome as well as your entry criteria and rationale behind your decisions. Updating your trading journal can be a great way to achieve a feeling of contentment as it gives you time to reflect upon your ability as a trader and the fact that hopefully it was not your fault, the market simply moved in an unpredictable manner after you entered your order. I also find it helps to take a break from my trading charts and go and do something else for a couple of hours. This gives my emotions time to calm down and lets me reflect on the trading decision I made a few days or even hours ago. Ultimately you need to define your own course of action to take after a losing trade, and this course of action should be designed to help you move away from feeling sad angry or upset towards feeling content and calm – ready to move onto analysing the market in a sound state of mind and looking for new trading opportunities.
Conclusion
Now you know exactly how you should feel after a losing trade and hopefully you have a good idea of ways in which you can achieve that feeling. You should feel content with the decisions you made and you should be confident enough to analyse the outcome of your decision and update your trading journal accordingly. You should always act according to your plan and this will help you suppress the negative feelings you experience after losing money in the markets. It is perfectly normal to feel disappointed, upset or angry when you lose a trade but you must come up with your own plan to transition from these feelings to contentment and calmness. Only by achieving contentment and drawing a line under the unfortunate outcome of a loss will you be able to make sensible trading decisions in the future.
This article has been contributed by Lewis Barber – Founder of Forex Trading University
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