Trading Psychology: Learn to deal with Trading losses

Do you want to know more about trading psychology? Watch our latest video to learn how to deal with trading losses and get profitable trading results in your everyday trading.

Learn to deal with Trading losses – A simple but effective guide

When trading with the trend, it certainly makes hanging onto a trade much easier than trying to fight it. Unfortunately, some people tend to take this too far. They’ll take a position to the extreme, hanging on to a position as the market goes against them. The first mistake they make is moving their stop loss, believing that the market will eventually “behave correctly.”

The worst thing that can happen at this point is the market turns around and rewards them for their stubbornness. While that’s a bit counterintuitive, the problem is that eventually the trend that you are following will and eventually reserve. If and when that happens, the trader who has been rewarded in the past will be decimated by the market rolling over. This is especially true when you are talking about Forex or futures markets, which of course feature a significant amount of leverage. In other words, your losses pile up as the market moves against you.

This is one reason that stop losses are to be honored, and never moved. There is no reason whatsoever to ever move the stop loss, because if the market has moved through that stop loss, something has changed, and your thesis is incorrect. By refusing to take a loss, you compound the losses from what once would have been a manageable hit to your account and have turned them into something much more nefarious.

Looking at the USD/CAD pair, you can see that we had a brutal and sudden moved to the upside back in 2008. Had you placed to trade after the search higher, you would have felt that the market is most certainly looking positive for your thesis. However, we broke down rather significantly, and given enough time you were losing money if you did not get out of the market. Perhaps your stop loss should have been at 1.20, but you decided that since the move higher had been so strong, that we should continue to see buyers. While in and of itself it’s not a bad thought, the reality is that once you started to lose money and then you hit your stop loss, it’s time to wait for another opportunity and take your losses. By not doing so, any trader who would have refused to take a loss on this trade will have lost their entire account by the time it was over.