In today’s world, people do everything they can to avoid losing. Losing is seen as a sign of weakness and failure that you should try to avoid in the future. In finance, especially, people look down on losers and don’t give them much thought because everyone is so focused on winning at all costs.
In trading, and in life in general, losing is actually one of the best things that can happen to us because it helps us grow. Learning from our mistakes helps us move forward and grow in ways that leave us with lessons we can use for a long time.
When it comes to trading foreign currencies, you’ll have to get used to losing. Straightforward.
Let me tell you why…
Just a Matter of Time
The number of trades you will make and the many different situations you will trade in will never be the same, because each trade is different.
Every trade is different because the price action will be different, the news that comes out on any given day will be different, the strength of the currency you trade will be different, and your mindset is probably never going to be the same.
You can’t possibly get it right 100% of the time because of all these things. In fact, being right 70% of the time is a ridiculously high percentage.
You have to change what you consider to be “success” in trading and what you consider to be “success” in general.
When you trade forex, it’s part of the job to lose trades. I can promise you that you will lose a lot of trades, and at some point you will lose most of the trades you make in a month.
But you know what? Even the best traders lose a lot. At some point in their careers, they will have lost most of their trades in a month.
What makes this different is how they react to losing. Based on the odds, we will all lose, and not just once or twice. You will have a run of bad luck; everyone does.
You can use a tool in my course to figure out how long your worst losing streak is likely to be based on how often you win.
How you handle these things will determine how successful you are as a trader. In this way, knowing what to expect can help put all the losing in perspective.
Also, you don’t have to win more than 50% of your trades to make money. Depending on your rules and your risk-to-reward ratio, you could make money with as few as 35% wins.
I try to get a 60% win rate by making sure that my winners are worth twice as much as my losses. For example, if I lose an average of $1, I win an average of $2. This is shown as a ratio of 1:2 in your risk-to-reward ratio.
How Not to Act
Even though it’s helpful to know how much you can expect to lose, another good thing about losing is that it teaches us what not to do in the future.
Look, there are a lot of different ways to trade foreign exchange. When it comes to trading, there are many different techniques, strategies, and points of view, and they all have their own flaws and problems.
When we lose, we learn where we might go wrong in the future and how to keep from making the same mistake again. In forex trading, one thing that can’t be taught is experience.
No matter how hard I’ve tried over the last 15 years, it’s the one thing I’ve felt held back by, because experience gives you a lot of knowledge. Part of this knowledge for me is knowing what not to do.
This includes knowing when not to trade, when to leave my charts based on my own psychology, and even when not to extend my target.
You can only learn what you shouldn’t do through experience, and most of the time, that means losing.
So, when you have a loss, don’t make the mistake of thinking it’s the end of your trading career. These are the points in your trading career that will make or break your success.
Getting Smarter From Mistakes
As we talked about in the last section, you can turn these losses into good things by doing something as simple as learning from them.
Changing the way we usually think about losing is hard, that’s for sure. We’ve been taught that success means winning, and it takes time to break out of that mindset.
We’re told to learn from our mistakes, so we can move on to something familiar to fight the idea that success and winning are the same thing.
We write down our trades so that we can look at all of our information. And when I said “all,” I really meant “all” data, including both wins and losses. It lets us learn from our mistakes and figure out what to do in the future.
If you make a mistake and lose a trade because of it, you learn a lot just from having that experience. Don’t forget what I’ve said about the experience.
It’s the only thing you can’t learn. It could be the most important thing you know about trading, though.
All of this has to do with trading psychology in the sense that it’s up to you to not let these bad things get you down. Learn from them, figure out what went wrong, and change your approach, and you can turn something that is usually seen as bad into something that helps you succeed.
Trading can be hard to get into because you have to be able to handle losing. But in my experience, the mistakes I made and the trades I lost helped me learn more than any of the trades I won.
Without those losses, I wouldn’t have known how to avoid the trades that turned out to be big, steady winners.
At the end of the day, that’s what we all want from trading!
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“If you don't find a way to make money while you sleep, you will work until you die.”
- Warren Buffett
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