If you want to be a trader, you will eventually lose money. If you're still trying to avoid all losing trades and looking for the "Holy Grail" forex trading strategy with a 75% strike rate, you should stop immediately. As cliche as it may sound, trading with forex success necessitates both winning and losing; the two go hand in hand. You won't ever become a successful trader if you don't learn how to fail correctly.
Check your reality
Pro traders know that losing money is inevitable and accept it as part of the "game." Unfortunately, for many traders, every trade is accompanied by a great FEAR of losing money and, occasionally, a strong emotional attachment.
The following are some of the leading causes for traders to worry about losing their money:
1. They are unaware that, mathematically, a trader can lose most of their deals over a series of trades and yet be vastly profitable.
2. They are simply concerned about the financial loss in general.
3. They are taking on precarious forex trading positions, which leads to anxiety, restless nights, and extreme mood swings.
Although fear of losing money can be a healthy, normal emotion, we must change the way it is viewed:
In many aspects of life, fearing losing money is a healthy emotion; otherwise, the world and the markets would be in even greater shambles. Humans are rightfully protective of their material possessions because they work hard to earn them.
This natural tendency to be protective and emotional with money needs to be changed and refocused into a new mental state, though, to trade well.
A trader has complete control over the risk management of every trade through stop losses and position sizing [and for more experienced traders, derivatives, and hedging mechanisms (not discussed here)]. Instead of being afraid of losing money when you trade, embrace your control over each trade. Instead of feeling "fearful" about losing money, you should feel empowered and confident because, using these tools, you can select how much you are OK with potentially losing BEFORE starting a trade. These risk management tools are your way of managing your money/funds.
However, relying solely on these techniques to manage your risk per trade won't completely cure your dread of losing.
Pose some complex inquiries to yourself.
When you place a deal, you should "slap" yourself in the face and ask three critical questions (and honestly answer each one):
1. Am I knowledgeable and confident enough to begin forex trading with real money?
You probably shouldn't be trading with forex in the markets if you don't know your forex trading edge and don't have complete trust in your capacity to understand and change the needs. Lack of confidence in one's trading with forex abilities is one of the leading causes of traders' fear of losing money. Many traders lack a well-developed forex trading strategy, trading with a forex plan, a forex trading record, etc. They aren't yet ready to take severe financial risks in the markets. Therefore when they trade, they experience terror.
2. Is the position size I'm trading with forex out of line with my risk tolerance or per-trade risk profile?
You must first determine your level of risk tolerance for individual trades if you don't already know what it is. It's essentially just the amount of money you feel entirely comfortable losing on any business because you could lose on every trade. It would help if you first consider your total financial status before deciding how much money you can honestly and reasonably risk on any given transaction. Here, be sincere with yourself. Instead of just a small-time guy attempting to strike it lucky, you need to think of yourself as a risk manager and someone who manages funds. Your forex trading mindset will directly impact your forex trading outcomes.
3. Do I comprehend the math involved in trading with forex?
I mostly mean risk reward and how it relates to your overall winning % when I say the "maths of forex trading." For instance, if you place a series of 20 transactions, you are almost certain to lose 35 to 45% of them. Most successful traders also lose 40 to 50% of the time, and some even as much as 60% of the time. However, you might lose more money than you gain and still make a good return because of the power of risk and reward. Below, we shall go into further detail.
Accept the idea that failing is OK.
Lost is excellent as long as you swiftly cut your losses and realize that you are merely protecting your capital and that your winning trades will more than makeup for your losing deals with profit. We shall see how vital your average risk-to-reward ratio across several transactions is in the following example.
Let's look at a case study with 14 transactions with only a 43% win rate to show that even very profitable traders often lose more than they win. That indicates that you only succeed 43% of the time, losing 57% of the time. It can be challenging to reconcile "losing" the vast majority of your deals with success.
Trust your plan of action and the math.
As we can see from the hypothetical track record above, the arithmetic tells us that even if we lose 57% of our trades, the gains will take care of themselves, provided we let our winners run to about 2 to 1 or greater and cut our losses at -1R or less. It's important to note that we included a few 1.5R winners since, depending on market conditions, it may occasionally be more advantageous to accept a return that is just under 2R.
Conclusion:
A trader's paralyzing dread of losing money or a transaction might prevent them from taking advantage of high-probability trade setups, force them to continually second-guess their decisions, and even keep them from getting any rest. We must overcome this fear if we want to be successful traders. Acceptance is the first step in overcoming the anxiety of losing money and trades; even if we strive to avoid it, we will inevitably lose money and have losing transactions. Therefore, it makes no sense to "attempt" to prevent losing transactions; instead, we must develop the ability to accept and control them.
Check out EnclaveFX Ltd's Forex trading course and members' community to learn more about the ideas above and to get started on the path to overcoming your fear of losing money in the markets.
