The failure to accept and take losses is the most frequent mistake by currency traders. Traders must accept the fact that losses are a permanent part of their trading existence. Taking controllable losses are just part of trading but most struggling traders spend their entire trading career to run away from losses, it’s hard for them to accept they can be wrong.
Taking a loss does not always mean you were wrong in your trading decision but it can tell that your timing in entering the market was perhaps incorrect. Sometimes, it is better to close the trade for a loss and to re-enter the market at better prices.
Successful currency trading is determined by how well we can manage our losing trades and not how well we can avoid them. Keeping your losses under control is the key to become a master in trading!
Tips on How to Eliminate the Sin of Failing to Cut Losses Short:
1. Never place a trade without first determining where you will close the trade if things go the wrong direction - Never place a trade without a predefined stop loss order, taking a trade without a stop is like racing down a steep hill at top speed without any brakes.
2. Always adhere to your predetermined stop loss order - Never move your predefined stop loss further away from the market in the hope your losing position will reverse, doing this will often lead to much bigger losses or you can get stuck in an open trade for unknown period of time. Your stop loss is there to minimize your losses, if you continue to move it away from the market price you will lose more money for sure in the end.
3. You cannot afford to win if you cannot afford to lose - Losses are a permanent part of trading existence, if you are not in a position to accept losses, either emotionally or financially, you have no business currency trading. Becoming disciplined enough to cut your losses takes time but it is the key to become a master in forex trading and remember, “you should not invest money that you cannot afford to lose.
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