Major Reason why You make Small profits and take Big Losses in Forex is because you have lost market objectivity.
This is due the influence of greed, fear, regret and revenge.
You trade what you are thinking instead of what you see!
The problem is that traders want to be right about the next market direction always which is not the case.
Traders hold onto losing positions with a belief that the market will come back at least to the price they entered so that they close at a break-even. But most times, this never happens.
At the end of the day their accounts are wiped off or liquidate their trades with big losses.
Holding on a losing trade, closing your positions at break-even or with a small profit happens due to fear to accept loss. When you fear to lose, you end up losing more instead of growing your account.
Let’s now look into details why most traders make small profits and take big losses in Forex Trading
Why do you make small profits and take big losses in forex game?
If you find yourself stressed or too excited about the markets, then something un-pleasurable is on the way.
This is due the influence of greed, fear, regret and revenge. These emotions are the reason why you make small profits and take big losses in Forex Trading.
So, how do you know if you are in a losing game?
1. Trading in regret.
I wish I had closed that trade
The next trade you take, you are likely to close it out in small profits before reaching your target because you are scared the market might turn around and wipe off your already made profits.
If you keep closing out trades prematurely, you will never grow your account. You will only trade to pay back spreads.
Why did I take that trade?
Under this circumstance, you will always hesitate to take on another trade thinking it may also fail hence missing out on a good opportunity.
Or you are likely to either take trades late chasing the market, entering a trade on its reversal point thus making more losses.
If only it could get back to break even
Wanting so much to break even is a character for greedy traders.
When you stay in a trade for long, wanting to exhaust the whole price trend in a single trade, it may not do you good rather than giving back your money to the market.
The market knows no one and you can never be sure where it will reverse from. When you realise you are this kind of a trader, know you will always make money and give it back for the market.
Trading to break-even is a result of staying long in a trade and failing to accept loss. As a result, it may lead to a big draw down or blow down your account.
2. Random trading
Trading without a stop loss
When you trade with no stop loss, you expose all your hard work to a greater risk. Anything can happen in the market and the market gets more volatile.
This is when you will receive a marginal call that your account is actually no more.
Trying out Different Strategies.
When you trade trying out different strategies, on a good day, you may make good profits but when the market goes against your favour, you are likely to make a large loss.
This is because you don’t know what to do in case a trade fails. More to that, you do not know the strategies winning rate.
Trading randomly trying out different strategies will not give you chance to trade consistently rather it will cut your trading life short.
Being in the Market all the time/ Running after the market.
You realise you are always in the market trading. Making it worse, you hold several trades on the same pair or related currency pairs.
In case anything goes wrong, all your trades go red and you have big losses for yourself. On other occasions, you trade chasing the market because you never want to miss-out anything.
Without knowing you are actually entering a trade on its pullback or reversal and your stop is taken out in a blink of an eye.
Being in the market all the time does not make you a consistent trader nor a forex trader. It makes you less a gambler but a loser.
Trust me, you will only profit by chance only on one trade out of the many trades you are taking. With this you will not last long till your account is down.
3. Failure to accept loss.
Holding on to losing trades for long.
Traders stay in losing positions for only 2 reasons.
Either they don’t want to be wrong about the market or they don’t want to lose money on the trade. Sometimes it is a combination of both.
Regardless of which one it is, it causes traders to stay in positions that are going against them.
If a trade goes against you, the market is saying you are wrong. If you continue to hold onto a losing position, you basically imply that the rest of the market is wrong and you are right.
A single trader’s decision cannot overturn all the other traders’ decisions. If you are to rely on that, then you will always end in larger losses.
How to overturn big losses
1. You Must Be Able to Admit When You Are Wrong and Take a Loss
Being able to admit you are wrong and take a loss is the first step in the journey of successful trading.
No one is perfect in trading.
Taking a small loss is a minor victory in trading. Being able to let winning trades run and exiting losers for a small loss is what it is all about.
However, you can’t get to the winners if you take big losses.
It is OK to be wrong. Actually, it is great to be wrong. Why? Because if you can’t be wrong, you’ll never be right about the markets.
Trading is about taking risk and managing risk. The trader who can exit a position going against him early is giving himself the change to win big on the next opportunity.
2. Cutting losses fast and letting winning trades run.
Instead of cutting losses fast and letting winners run, beginner traders seem to do the exact opposite.
This is something not easy to do but if you want to profit in trading, you have to try.
Practice more on using risk management on your trading strategy trading on a demo.
Learn how to identify a failing trade so that you are able to cut your losses early on failing trades. Know when to take profit and always set achievable targets for your trades.
It is not too late to change.
All you need is to be a disciplined trader, have a trading plan and trade following your plan. Leave your trades to run and close only when it shows signs of a failing trade to cut on losses.
3. Place Stops loss
It is very important to give a trade enough room to work out after entering a position, but also must have stops in case the market moves against you.
All traders need to define this risk parameter BEFORE they enter the trade.
You need to know what the risk is and make sure you are comfortable with the risk in case you are wrong about the direction of the market.
When a trade goes against you and the market keeps on going against you, it is very difficult to make a clear decision.
The fear of losing money is the greatest factor in the psychology of trading.
It causes traders to see things irrationally, as they do everything possible not to take a loss. This is why it is so important to define the stop loss parameters before you enter the market and stick with it.
In case you get into a trade without a stop and the trade run too far against you, the best thing to do is exit. Getting out of a losing trade relieves stress and allows you to make quick good decisions.
Once you are out of the trade, you can take on more good opportunities.
4. Having a trading plan
Once you come up with a trading plan, it simply means you now have a designed strategy you can follow to trade.
A trading plan contains, a strategy in form of guidelines and the rules to follow when in the market.
Learn what is on your trading plan, practice it always and trade only that.
This way you will not make small profits and take big losses in Forex trading.
It will not only help you to trade consistently but also last long in the game of trading.
