Don't overestimate the losses, get used to them

A losing trade can affect each trader differently. Some take losses as part of trading, others try to learn from each loss, etc. These are the better cases. In the worst case, one losing trade can affect a trader's behaviour for a longer period of time. How to defend against this?

For some, a losing trade or a series of losing trades is a part of the trading process to be reckoned with and, at best, a lesson to be learned for the future. For many traders, however, a series of losses, or even a single failed trade, can trigger such a strong reaction that it can affect decision-making in several other trades.

Thus, one losing trade may not ultimately mean only the one given loss that the trader realises on that trade, but may have a negative impact on future trading decisions. Thus, the total loss from one such trade is much higher than the nominal loss from one failed trade.

Quick money and distrust in the strategy

Something like this happens mostly to inexperienced traders who think of trading as a quick way to make money. Unfortunately, they start trading without a tested strategy, they don't have a clear trading plan and one loss can quickly throw them off the concept and cause other trading positions to be negatively affected.

However, it can also happen to traders who already have some experience built up in the past, but one failed trade that ended in an unnecessarily large loss can also throw them off balance in a way that negatively affects their other decisions. In this case, then, the negative emotion associated with one loss may be related to a lack of confidence in a strategy that is either not properly tested or not suitable for that type of trader.

In either case, this one loss can lead to such undesirable actions as revenge trading, additional unnecessary trades in an attempt to make up for said loss, or adjusting Stop Loss or Take Profit levels in an incorrect manner that does not fit the trader's strategy or approach.

You can control your losses

Losses and their magnitude are one of the few things a trader can influence and partially control. A losing trade does not mean that the trader has failed, it is part of the process that happens to even the best and most experienced traders. This is because they know that if they get used to the losses and don't dwell on them unnecessarily, they can learn from them and it will help both their psyche and ultimately their long-term performance.

How to get used to losses?

Getting used to losing trades can be challenging for some traders, but those who want to be successful must at least try. In short, it is necessary to realise that there is risk in the markets that cannot be fought, but must be accepted and embraced.

The basic starting point is realistic expectations, which novice traders in particular need to be aware of. Forex is not a quick way to money, it is a long term process that needs to be learned. With this comes the need for constant education about the workings of the market, trading fundamentals, strategies, approaches and everything that goes with trading. The more a trader knows, the better he or she can prepare for all possible scenarios that can occur when trading.

An essential part of successful trading is, of course, developing a trading plan, including a workable strategy that needs to be properly tested. The trading plan must also include clearly defined objectives, risk management rules including market entries and exits, stop loss and take profit settings, position sizing, etc.

Many traders forget to keep a trading journal, which can help in trader self-awareness, finding flaws in entries and exits and subsequent correction (but be sure to properly test changes in the strategy on a sufficient sample of data). Profitable trades are fine for psychological well-being, but it is the losing trades and their study using a trading journal that a trader can learn the most from. Thus, it is the losing trades that are properly documented in the trading journal that can become a tool that a trader can use to improve his trading approach.

Psychology plays an important role in trading. The wrong psychological setup is one of the main reasons why traders are not able to take losses without stress, even if they master risk management and all the technicalities of trading. Thus, managing emotions and keeping a cool head is one of the conditions to learn how to live with losses and not act impulsively.

If a trader is not able to achieve this on his own, it is not a bad thing to find help from others. It can be a mentor who can help with a trading strategy or plan in addition to the psychological side. Someone can be helped by feedback from other traders within a community of selected traders. Then, within FTMO, traders also have the services of performance coaches who can offer advice and solutions in managing stress and finding the right mindset.

Losses are something that everyone has to take into account when trading forex and CFD products. They should not be taken lightly, but it's essential to accept them as a necessary and natural part of long-term successful trading. Embrace them and trade safely!