Although losing trades is a natural part of the trading process, it is something that many traders – both beginners and professionals – struggle with.
I think the main reason why losses are so difficult to deal with is not understanding their nature and impact on trading psychology rather than actual psychological issues.
Today, I would like to talk about the four stages of losing in trading: denial, rationalization, depression, and acceptance.
Do these terms sound familiar? They should because they resemble the four stages of grief! But note that they are applied differently in trading.
Stage One: Denial
The first stage of loss enables you to deal with a losing trade.
At this point, you are denying to yourself and others that your trading idea was wrong and that the loss was not your fault. Reasons such as “I was being hounded” and “I didn’t really care about this trade” are often used.
It’s okay to feel this way, especially if you’re new. It’s a way to soften the blow to your ego, get over the loss, and move on.
The second stage: rationalization
After the denial, you can move on to justifying your trading settings.
This is the point where you point out everything that is right about your business idea and don’t even think about what you did wrong.
You cite the suitability of your trading plan, profit target, stop loss, and entry point, but you completely ignore that you actually lost the trade and made a mistake somewhere.
The third stage: depression
At this point, you have already considered all the possible external causes of your loss. Then you turn inward and consider the idea that the loss was entirely caused by your actions.
Although it is reasonable to take responsibility for your losses, blaming yourself too much can be detrimental to your Forex career if you constantly doubt yourself.
You may ask yourself questions like “Is financial trading really for me?” and “Why continue at all?”
You may end up quitting work completely if you can’t find enough reasons to keep moving forward.
Those who have experienced this type of self-doubt can attest that the longer the loss lasts, the more intense the feeling of depression.
Some even talk about pursuing other opportunities and giving up on forex trading altogether!
Stage Four: Acceptance
At this point, you begin to realize that it is unhealthy to blame yourself for everything that went wrong.
Although you accept that the loss was partly your fault, you also recognize the fact that the market is a wild, untamed beast and that there are many factors beyond your control.
Let me be clear that this acceptance is not just about feeling good about losing. In fact, acceptance is more like aligning yourself with reality and realizing that loss cannot be undone.
When you get to this point, you accept that you made some mistakes on your part, but there are also things you cannot control.
At the end of the day, it’s important to remind yourself that you can never truly get back what you’ve lost, but you can make up for it.
One obvious way to do this is to make a winning trade and recover financially, but you can work on recovering mentally as well.
You can come up with improvements to your trading strategy, practice better risk management, or just learn how to handle your losses better.
Instead of just denying the loss, move forward, adapt and grow.
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A journaling tool that can lead to valuable insights into performance and strategy! You can easily add your thoughts, plans and track your psychological state with each trade. Click here to see if this is right for you!Disclaimer: Babypips.com earns a commission from any signups through our affiliate link. When you subscribe to a service using our affiliate links, it helps us maintain and improve our content, much of which is free and available to everyone – including Pipsology School! We appreciate your support and hope you find our content and services useful. Thank you!