This is a great article about your emotions and the psychology of trading. Sometimes not trading is the best trade of all. Read on. The GotForex Weekly Newsletter by Rob Booker Trading currency is risky. You can sustain the total loss of your trading capital. In the midst of one of the most volatile periods in the forex market in the last 10 years, what are you doing right now to protect your capital? What are the top 10 ways you, every day, manage your risk? Your trading account doesn't represent just the $500, or $1,000, or $100,000 that you have deposited. It represents possible future gains (or losses, of course). If you deplete all that capital on reckless trades, what will you have left to trade with? It's always better to sit on your trading capital than it is to use it recklessly. Big moves in the currency markets are exciting, for sure. Everyone seems to love a trend and loves even more to talk about how they caught a big piece of it. But we all know what it feels like to take one too many trades, or to risk too much on a single position, or to try to pick a bottom (or top) in the market and then find ourselves losing a significant amount of money. Are you currently riding losing positions? Here are some thoughts. I can't tell you whether you should open or close any specific trades. But as you think about your trades, consider the following questions:
1. How does your current loss compare with what you expected to lose, based on the testing of the system you are trading?
2. If your system is not tested, and you do not know what the expected rate or size of losses should be, what can you do right now to find that information?
3. Have you shown your account to someone that you trust, an experienced trader, who can help you look at your positions and talk about them?
4. If you feel ashamed of having lost a great deal of money, consider what you can do to face that embarrassment head-on: it is better to deal uncomfortably with a loss in the open than it is to privately blow your entire account. Any pride you feel that you are protecting by not talking openly about your mistakes will, in the end, be a very expensive investment.
5. Remember that everyone has experienced losses. Even significant ones. Warren Buffett's company Berkshire Hathaway is named for the textile company he invested in that became a sinkhole for money and cost him a great deal of time, effort, and capital. Any successful trader you speak to will frankly discuss the worst trades they've made and what they learned. These experiences have been, in some cases, more instructive and meaningful than even their most profitable trades.
I take a lot of flack at times for suggesting that you are better off speaking openly about your trading mistakes with other people. I don't say that because I delight in hearing about your mistakes. I do it because if there is any possible way that you can find your way out of the losing trades you're in, isn't it worth it to actively and openly try to find that solution?