Losing is part of the game as a Forex trader. It’s something that every single trader has to come to terms with in order to become consistently profitable. I will even go as far as to say that the trader who has a true edge in the market will still lose money consistently if he/she has not learned to lose.
Learn to lose?Yes, you read that right. In order to win at the game of Forex, you have to learn how to lose like a winner. It isn’t enough to try harder. In fact in most cases that will only make things worse. The harder you push on the market, the harder it will push back.
To become a winner, you have to learn how to lose like one.
In this article we’re going to take an in-depth look at why learning how to lose is so important to your success as a Forex trader. You will learn how to separate feeling pain from fearing it, as well as steps you can take to remedy any fear of losing.
Feel Pain but Don't Fear It
There’s no getting around it, losing sucks. It doesn’t matter if it’s losing on a trade or losing at a game of Monopoly. It’s never fun to lose and it will always cause some form of pain or at least mild discomfort.
But feeling pain isn’t a bad thing. It’s our body’s way of telling us that something is wrong, and perhaps, that something needs to change.
If you lose a trade and feel nothing at all, you’re in trouble. Because the moment you become numb to losing money is the moment you begin to overtrade or overleverage your account, both of which can get you in serious trouble.
A lot of folks think that to be a highly successful Forex trader you must have nerves of steal. To some degree I suppose that’s true. But when it comes to the pain of losing a trade, there isn’t a trader on earth who doesn’t feel something. Even the most successful traders in the world feel some discomfort after a losing trade. After all, they’re still human.
But there’s a big difference between feeling pain and fearing it.
Every trader feels some form of pain when they lose, but only the successful have developed the ability to not fear it. That’s what it takes to lose like a winner.
Separate the Feel from the FearThe first thing you need to do to figure out why you fear losing money, is to separate the feel from the fear.
What does that mean, exactly?
It means you have to take a step back and reflect on your current situation. You have to figure out what it is that you’re doing or thinking that’s causing you to fear a losing trade rather than simply feel a losing trade.
In my experience, the answer usually comes in the form of one or more of the following:
You’re risking too muchTrading with a position size that’s too large for your account is arguably the number one reason most traders fear losing.
Solution:As you may know, I’m not a fan of only using a percentage to calculate position size. For example, the popular advice to risk two percent on every trade. While maintaining a conservative risk profile relative to your account size is important, it can’t be wholly determined with a percentage.
Here’s why…
Using a percentage of your account to determine position size, such as two percent, only satisfies the logical side of your brain. The problem arises when we realize that risking two percent is arbitrary. It’s an incomplete equation, which leaves the emotional side of our brain unsatisfied.
To satisfy both the logical and emotional side of our brain, we not only have to complete the equation, we have to fully accept the answer.
Is our two percent rule being applied to a $1,000 account or a $50,000 account? That’s a big difference. And as soon as you do the math, that two percent takes on an entirely different meaning.
Two percent of $50,000 is $1,000. Are you content with the possibility of losing $1,000? I mean seriously, 100% content with losing every bit of $1,000? Most people aren’t, even those with a $50,000 trading account.
As soon as you quantify the percentage, it engages the emotional side of your brain. That’s the side that most often gets us in trouble as traders, which is why it’s so important to consult the emotional side of our brain before determining position size.
Therefore, the best approach is to use a percentage of account balance and a fixed dollar amount to determine position size. That way you engage both the logical and emotional side of your brain when determining risk. This will help keep your emotions in check if the market begins to move against your position.
You can’t afford to loseIf you want to become a successful Forex trader, you have to trade with money you can afford to lose. I get emails every week from folks asking if they should quite their day job to trade Forex full-time. After a bit more back and forth, I learn that they have only been trading for a few months.
That’s a recipe for disaster. If you need the money in your trading account to pay rent, your emotions are going to run havoc on you, prohibiting the clear, open mindset necessary to consistently make money.
Solution:Simple, only trade with money you can absolutely afford to lose. If you need the $1,000 in your trading account to pay bills next month, you’re better off withdrawing that money and paying the bills.
I realize that not everyone has disposable income they can use for trading. But there’s no need to rush it. If you are not in a place in life where you have disposable income to trade with, spend some time saving up.
In the meantime, practice trading in a demo account. Fine-tune your trading abilities so that when you do have the money to open a real account, you will be that much more likely to become a successful Forex trader.
Trading with money you can’t afford to lose will lead to emotional decision-making. You will be trying too hard to make it work. Trading the Forex market, or any market for that matter, is one professional where trying too hard can get you in a lot of trouble. As I always say, the harder you push on the market, the harder it will push back.
So be sure to only trade with money you can afford to lose.
Your confidence is lackingI can tell you without a shadow of a doubt that if your confidence is lacking, so too will your trading performance.
There’s a big difference between someone who experiences a series of losing trades and has full confidence in their trading strategy versus someone who experiences a series of losing trades and has no confidence in their trading strategy.
The former uses that confidence to defend against the fear of losing, while the latter will more often than not spiral out of control.
Solution:Trade in a demo account for as long as necessary. Don’t rush in to trading with real money. The Forex market will be around tomorrow, so why rush?
Take the time to build the necessary confidence in your strategy. That confidence is what will get you through the tough times ahead. As someone who has experienced tough times as a trader, I can tell you that a high level of confidence in your strategy and your abilities as a trader is invaluable.
The trader with confidence will persevere every time, regardless of how many losses they take. The trader with no confidence lacks the foundation from which to persevere through the tough times. So when that trader experience a series of losing trades, fear builds up as a defense mechanism rather than confidence.
It's Just FeedbackAs human beings, we tend to personalize things by applying emotions to certain outcomes. This isn’t surprising considering we have relied on our emotions to survive for thousands of years.
For most traders, this habit of personalizing things tends to carry over into their trading career. I see it all too often around the internet. Someone speaks of a losing trade as if it was a personal attack. They blame a central bank, their broker or just the market itself.
It isn’t personal. It never was and it never will be.
Take a losing trade for what it is – feedback. It’s the market’s way of letting you know that perhaps the setup wasn’t good enough. Maybe your stop loss was poorly positioned. Or maybe your support or resistance level was misrepresented. Whatever the case may be, it’s just feedback.
That said, there won’t always be an explanation. The market doesn’t need a reason to do what it does. If you get stopped out, it doesn’t necessarily mean you did anything wrong.
I have had many losing trades where everything was spot on, yet the market didn’t feel like playing nice that day. Give me that same setup ten times and I will take it every time, because I have confidence in my trading strategy and my ability to flawlessly execute that strategy.
Developing a Winning AttitudeThe very best way to develop a winning attitude and thus not fear losing is through assimilation. Start to immerse yourself in the work of other highly successful Forex traders. Take a Forex trading course and read books such as the Market Wizards series by Jack Schwager.
Speaking of Market Wizards, I’m actually in my fifth read of the series as I write this article. There are several books that Mr. Schwager has written over the years, and all of them are saturated with invaluable content from cover to cover. They include interviews from big names such as Richard Dennis, Bruce Kovner and Bill Lipschutz, to name a few.
Get your hands on anything and everything you can that will help you develop the same winning attitude as the traders I just mentioned. Those guys have “been there, done that”. All of them started with small accounts which they eventually grew to hundreds of millions of dollars. But the real gold is learning how they battled through the hardships to get there.
