When you trade on the FX market you are going to suffer FX trading losses; they are inevitable from time to time. It is important that you are able to determine between losses that come from an unpredicted event on the market and losses that come from bad FX trading. You need to consider this because there is nothing that you can do about unexpected market spikes and fluctuations. However, FX losses that come from bad FX trading can be limited and avoided once you know what the problem really is.
Reviewing Your FX Trades
The first step in determining why you have made a loss is to review your trading. The best way to do this is through a forex trading journal. The journal should contain more than just the trade data that you can get from reports that come with your broker account. The journal should have all the steps that lead to the trade from the analysis that you completed to the calculation of where you should be placing your stop orders. If you do not have a trading journal then you have to consider starting one.
When you review your trades you need to consider whether or not they are done according to your trading strategy. This one point can lead you to determining whether you are making losses from unexpected event or from bad trading. Bad trading losses will be any loss you make when you deviate from your plan.
What the Unexpected Event really Unexpected?
There are a lot of traders who simply attribute all of their losses too unexpected events on the market. This is something you need to avoid because it is very rare that all losses come from these events. This type of reviewing is a mental trading mistake that you have to distance yourself from. If you continue to operate in this manner you are going to have serious losses on the market and you will not take any steps to rectify it.
When you are reviewing your trading you need to look at the exact movements of the market when you made the loss. You should consider whether there were any signs that you missed which told you about the unexpected event. There are often signals that let you know that something is coming. It is important that you know what these signs are and how you can identify them. This will help you limit losses in the future.
Overcoming Bad Trades
If your review of the market shows that you have been making bad trades and this is why you are losing you have to consider what these trades are. If you are diverting from your trading strategy you have to consider if you are consistently doing this. To determine if you are consistently diverting at a single point you need to look at your losing trades and your winning trades. If you are diverting with all of your trades you should consider changing your strategy.
When you change your strategy you will need to retest it on the demo account. Any changes made to any part of your trading plan or system must be tested before you begin trading live.