This article looks at the ways that you can handle losses on the foreign exchange.
Loss on the foreign exchange is something that all traders are going to face at some point. This is why you have to consider how you are going to be handling the losses that you have. If you do not handle the losses on the foreign exchange correctly then you are only going to add to the losses. It is important that you know about the right and the wrong ways of handling foreign exchange losses.
The Wrong Way of Handling Losses
There are a number of wrong ways to handle losses on the foreign exchange. The most common ways is through revenge trading and ignoring the situation. There are also a number of traders who look at using the scaling down method which can lead to profits, but more commonly leads to additional losses.
When you complete revenge trading you are looking for vengeance on the market that you feel has taken your profits. This is a very negative way of trading and will only lead to losses. When you revenge trade you are going to be trading based on negative emotions. These emotions will lead you to not think about the trades and the risks that you are taking. Most traders who revenge trade will take big risks which cause major losses.
Ignoring the situation is something that a lot of traders do. When you do this you are not willing to accept that you were wrong about the trade and hold onto the hope that it will turn and you will make a profit. Traders who have this mentality are more likely to complete averaging down trading as well. When you use averaging down you will add money to your losing trade so that when the trade turns you are able to make your money back.
The Right Way to Deal with Foreign Exchange Losses
When you are face with losses on the foreign exchange you should accept that you have made the loss. This is often easier said than done depending on the scale of the loss. When you lose large amounts you should consider taking some time away from the market. You do not have to take a whole day off, but a 10 minute break could be enough to clear your head and ensure that you consider the loss rationally.
The larger the loss that you have made the longer you should take away from the market. If you try and trade after a major loss you could be emotional and not make rational decision. This will lead to the bad ways of handling your losses.
Of course, you should not just accept the loss and move on. You need to determine why you made a loss at all. There are times when the market moves unexpectedly and this will lead to losses. However, there are other times when you have made a mistake on the market and you have to consider why you have done this. If there is a problem with your trading strategy you need to identify this and fix it. If you do not determine why you have made a loss then you are doing nothing to prevent this from happening in the future.