How to Break Your Cycle of Losing Forex Trades
The primary goal for any trader is to maximize winning trades and also to have as many winning trades as possible. However, where most traders go wrong is thinking that EVERY trade will be a winner and then becoming emotional when they hit an inevitable loser. Since most traders do not know how to lose properly, they typically experience a string of consecutive losing trades that significantly drains their trading account. It is these large series of losing trades or the ‘cycle’ of losing trades that we need to learn how to break, and in today’s trading lesson I am going to give you some concrete tips to help you avoid experiencing a large series of emotionally-induced losing trades…
Every trader has losing trades; in fact we can even say ‘losing is part of winning’ as a Forex trader. Whilst losing trades are indeed a part of trading that we cannot avoid, it is important to learn HOW to lose effectively. This is not a topic that is discussed very often since it is not exactly ‘hot’ or ‘catchy’, but I can assure you that until you know the correct way to lose a trade you will never become a long-term winning trader.
What does losing ‘properly’ mean?
In the opening paragraph I eluded to ‘losing properly’. You may have thought this sounded a little bit weird if you aren’t a very experienced trader or if you are still in denial of the reality of what it takes to become a successful trader. So, I want to explain what I mean by ‘losing properly’…
Basically, losing properly means accepting a losing trade and NOT BECOMING EMOTIONAL. How many times have you had a trade turn into a loser that you thought was the ‘perfect’ setup that just could not fail? It is these situations that give most traders trouble and cause them to become emotional after a loss. You have probably experienced a large string of losing trades after a trade setup that you thought was ‘perfect’ failed to work out how you thought.
A truth of trading is that no one ever knows and can never know what is going to happen in the markets with 100% accuracy, at least us small-time retail traders that is. So, if you believe this fact and accept it, you should always be consciously aware of the fact that every time you enter a trade you COULD lose the money you put on the line. Even if you are a master price action trader and your yearly success rate for your price action setups is say 80%, that still means you are going to lose 20% of the time, and the key here is that you never know WHICH trade will lose and which will win, so you HAVE TO practice proper Forex money management on EVERY TRADE you take.
The point here is that if you fully accept that you could lose on any given trade and you manage your risk properly as a result, you should largely eliminate any potential for becoming emotional after a losing trade and this is the key to both breaking a cycle of emotionally-induced losing trades as well as helping you avoid large strings of emotionally-induced losing trades.
How do you lose ‘properly’?
(Note: there are emotion-induced losing streaks and ‘natural’ losing streaks, some losing streaks are just a natural part of trading that we have to deal with by controlling our risk on every trade, but the losing streaks fueled by emotion are preventable and these are what I am talking about in this article)
Now that I’ve explained what losing properly means, and that you have to eliminate emotion after a losing trade in order to break an emotionally-induced cycle of losing trades (or avoid one), I want to give you some pointers on exactly how to eliminate emotion after a losing trade:
• STOP TRADING
It can be difficult to ‘wake up’ when you are in the middle of an emotion-fueled account-blow out, but if you can manage to take off the blinders for a minute and realize that you are out of control, the best thing to do is to simply stop trading, at least with real money. There’s nothing wrong with going back to demo trading to regroup or simply taking some time off from the markets all together. Indeed, if you are in the middle of an emotion-fueled losing cycle, it is unlikely that you can ‘trade your way out of it’, so instead accept the reality, take your losses, and regroup.
• START LEARNING
If you are experiencing cycles of emotion-induced losing trades and large strings of losers, you probably have some learning to do. Go and read some of my other Forex trading articles that cover topics like trader psychology and money management, these are likely to be of great benefit to you while you take some time off from the markets to regroup.
• RISK MANAGEMENT
Perhaps the most important aspect to losing properly and avoiding large strings of losing trades is simply to manage your risk effectively as you trade. Many traders email me looking for concrete rules to risk management, but in reality there are none because every trader’s financial situation is different. The dollar amount that you risk per trade is very important to your overall emotional state as you trade the markets. If you risk an amount that causes you to think about your trade all the time and lose sleep over it, you are obviously risking too much. My general rule of thumb is to always risk an amount that allows me to totally forget about the trade. If you are 100% OK with losing the money you have risked on a trade you will not lose any sleep over your trades and you will not become emotional after a losing trade. This is the KEY component to breaking cycles of losing trades and avoiding them in the first place.
• PATIENCE / DISCIPLINE
If you can manage to not jump back into the markets after a losing trade only because you want ‘revenge’ and to try and make back your lost money, you will largely avoid cycles of losing trades. When you trade with discipline you are able to employ the patience that you need to only take obvious price action setups and this allows you to avoid many less-obvious / low-probability trade setups. Ending your cycle of losing trades is all about recognizing the things that make you emotional in the market and then eliminating them. However, the trick to this is that you need to possess the self-discipline to actually not do the things you know you are currently doing wrong. Discipline in any area of life takes conscious effort, whether it’s going to the gym 4 days a week or trading the markets, if you want to reap the long-term benefits you have to put yourself out of your comfort zone for a while. Changing your habits in any area of life is often not comfortable at first; it is only after we go through some mild discomfort via employing discipline that we see our efforts pay off.
• DEMO TRADE
Demo trading is a tool you can use to stop a cycle of emotion-induced losing trades. When you feel like you are out of control in the markets and you know you are ‘running and gunning’ instead of trading like a sniper, try going back to a demo account to eliminate the emotions and regroup. This is probably the easiest way you can stop a cycle of losing trades because you still get to participate in the markets but you don’t have to risk losing any more money.
• BECOME A FOCUSED SNIPER WHEN YOU RETURN TO THE MARKETS
While you are taking some time off from real-money trading to help break your cycle of losing trades, it’s a good idea to train yourself up on an effective trading strategy like price action trading. Trading is largely a game of trial and error; most traders need to learn the lessons of over-trading, over-leveraging, and not having a mastered trading strategy the hard way, that is by losing a lot of time and money. So, make sure you learn something before you try your hand at real-money trading again. Take the time to truly master whatever trading strategy you are interested in, until you are consistently profitable on a demo account. Then, when you have everything in-line, including 100% confidence in your ability to trade your strategy, a well though-out Forex trading plan and a trading journal to track your progress, come back to the markets and try your hand at real-money trading again.
48 Comments Leave a Comment
Your articles give light to my life,thank you so much Nial.
Man dude, your always so on point in your articles! thank you so much for sharing your knowledge..God bless.
Respected Nail Sir,
Following points are the conclusion and substraction from your all articles ……….
2- S/R levels
3- Price action set ups
4- “LRHP” trades
5- “MRT” management
With above five points, one can trade successfully.
I admire your profound knowledge and guidance.
Thanks a lot
My trading mentor and guru Nail Sir.
Thanks Nial..a good sharing..it is human nature not to accept losses. But we can manage our emotion when we face losses. For me, when I loss in my trade, I just stop trading and stay out from the market or laptop and start doing something I for fun like watching movies and reading books.
A very great lesson. In future i will strictly follow it
i like the nuggets of wisdom, very true
i like the ‘nuggets’ of wisdom patience and discipline
I have replicated your lessons to many souls who pray for you as I do every now and then. We all are blessed to have you in this generation and I say you a my mentor…
Thanks Nial, I’ve been a member of LTTTM for over a year and what you teach about Price Action and your great blogs have made improved my trading a lot.
Thanks Nial, as always you are so, so, right. Great lesson.
Thanks Nial, you listen and understand what we really need to hear and help us to become better traders.
thank you for the great lesson. all traders should read this article. thank Nial
PATIENCE, KNOWLEDGE AND PRIEC ACTION.
Great article. Learning the patince not to trade is one of the biggest challenges in my trading but the constant reminders from articles like this one are very helpful.
Great advice Nial… Thank You!
patience -patience -patience that’s the only way to trade.
the same thing happened to me this past week. i lost 6 times in a row which has never hapenned before even when i was demo trading. had to do a re evaluation of myself why it was so and after much thinking and goin through the trades i tooks, i found out that the problem was me and i was entering the trades too early and also not fully monitoring my trades. though i got to know that am emotionally attached to the trades been a live account but now that has been cancelled, as i am now ready to go back trading but this time with more focus, discipline and wont enter any trade until am sure of my entry point. your article also helped me to get more focus and determination….. we will all succeed.
This is an excellent lesson for me.i also follow the rule very strictly.
Thank you for another insightful article.
This what traders really need to be reading… These are things that affect all traders….
Great article. This is one my wife will need to read after today ;-) Thanks Nial!
Recently had a tring of losses.
Went back to demo with 5k capital and $150 risk per trade.
Initially losses at the end of the day continued down to 3.5K.
Am now at 5.6K. Will get back to Live trading once I hit 6K.
Guess your article reinforces my thoughts and actions.
THANK YOU Nial.
Another great lesson !
Thanks for your hard work and for teaching us your knowledge!
Keep up the good work and again, THANK YOU.
thank you very much, for the free lessons Nial. I’m strongly learning in order to take only very obvious setups and trade less, like a sniper. It takes time and alot of patience.To understand the importance of this aspect in the trading.
Thanks again for the good article.
Thanks Nial. Another great lesson!I appreciate all your hard work and effort to share your knowledge and continue to inspire me to be a profitable trader.
This is very helpful. Everyone will need to refer back to this article at some point. Nice job Nial, I needed this!
Dear ‘Prof’ Nial,
Thank you for this great wisdom nugget. I started practicing all your good advices on my trading. I want to say that I am happier trading now than ever before. I takes one trade a day at a time. I never go to look for trades on any other pair once I took my trade. Thank you for these wonderful lessons.
Practicing moderation, patience and discipline in non-trading (eating, ping-pong etc.) daily activities helps me carry out same in the trading arena. Try it!
Outstanding article Nial. I said it before , and I’ll say it again: you are a person of uncommon wisdom.
I know all too well how emotions can drain an account, especially when a person has a “need to be right”, or because of the significance one places on money (fear of loss, and the inability to control greed), you wind up doing things that when you wake up from the nightmare, you look at yourself in the mirror and say, what happened??? how could I do this to myself.
Your forex site, which I’ve been a member since Aug/11 has been a blessing in so many ways. One of which are these outstanding blogs that cut right to the heart of trading successfully. But also the way you trade: higher timeframes, and with no indicators: simple and clean.It’s like cutting through the fog.
With respect to this particular article, if I could leave just one recommendation to this amazing group.
The book that has changed my “trading psychology” for the better, and I believe is the best book out there by a country mile is Trading in the Zone, by Mark Douglas. You will not be disappointed. It will explain to you why we do the ridiculous things that we do. As well, Mark Douglas has a 4 DVD set called How to think like a professional trader, and explains in depth how price really moves, and why like Nial says you can never know for sure what happens next.
Thank you Nial for telling it like it really is.
As I like telling my wife, ” The last person I ever thought would help straighten out my forex trading would be from the Land of Oz!!) ( I live in Toronto)
Thanks for the lesson, I just hit this wall last week with ten bad trades in a row. Now I know how to deal with it.
Thank you Nial. I must say you have a uncanny knack for timing as to when to write an article and have it feel that it is for me personally. Just before this article I did just as you have outlined. Now I will start to read some of your other articles. I am going to keep looking over my shoulder for I sense your right there behind me saying to yourself oops here is my next article. HAHA
thank you for your hard work and patience!
A cat sits for hours waiting for the mouse to come out.
Some months ago I happened upon a good trading strategy, which is basically short-term Trend Following. This worked for a while, I then suffered 9 losses in a row. As I only risk 1% per trade I took it on the chin, and decided it just wasn’t working for me at the time. So, I did what you advise and stopped trading with real money, and went back to my demo a/c. This was to evaluate whether it was the strategy or me, that was causing the problem. It was me! The strategy started working again! I will continue demo-trading for a least a month, to gather more evidence and hopefully more confidence to go back live.
When I look and stand back, its obvious to me now I have done this the wrong way round. What I should have done is find a strategy that I like, demo it for at least 3 months, so I know it works consistently. Then I will have greater confidence when I go back to live trading!
The phrase ‘no pain! no gain!’ comes to mind here, a hard lesson learnt.
Thanks for your great inspiring articles, carry on the good work!
A sniper lies for hours, sometimes days waiting for his target to appear. He is focused, awake and ready. He takes one shot, maybe two but rarely more. He does not hang around to get shot!
A great practical tool for all traders. Trading is easy, making consistent money from trading is frustratingly difficult because emotions always get involved.
Discipline, practice, determination, real (and not presumed) confidence
Makes sound sense, but actually doing it is far more challenging
thanks for yet another of your great resources,Nial
good article .. thank you very much.
Controlling losses to have enough capital to continue to trade another time or day is the most important aspect of trading.
good article, thanks for the advices Nial. I’m strongly working to myself in order to take only very obvious setups and trade less but with more quality, like a sniper as you say. It’s an hard job but shape myself will pay in the long term. Thank you for let me understand the importance of this aspect in the trading.
i totally agree with nial. losing is part of the game but you risk management is the most important in forex. excellent article nial, you have helped a lot of people including me.
Thanks again for a wonderful article reminding us of the emotions that we go through whilst trading.
Accept your loss “gracefully” and wait “patiently” for the next “sniper” shot.
i traded a demo account and i made a lot of money in a few days, but i became cocky and i lost more than half of all i made. So i dumped forex for about 3 months. Now am back and i believe less emotional, am ready to build the money trickle by trickle by risking less and trading less. Not more than once a day.
Great article, just fantastic, looking forward to the next one – thanks Nial.
BE PATIENT OUT THERE everybody! :)
Common sense talk from a common sense trader. Says it as it is.
Good article, covering the most fundamental’s of trading. Patience and determination= success.