Tips To Avoid A Losing Streak In Forex Trading

All trades are placed with the intention of winning in the end, but the risk of loss cannot be eliminated even when your strategy has a high win rate. No trader wants to deal with a losing streak as it not only impacts you financially but also leads to mental breakdowns with stress, anxiety or burnout. It is impossible to avoid losses that happen once in a while. 

But frequent losses are unacceptable and stop you from becoming truly successful as a forex trader. All standard trading platforms provide a lot of powerful tools for analysis, allowing traders to make informed decisions and minimise potential losses. Two of the most used forex trading platforms are MT4 and MT5. MT4 is apt for a simplified trading experience, while MT5 is a modern and updated version that is loaded with advanced additional tools and features. 

Finding a fully functional and stable platform for trading is my first tip for avoiding excess losses. While reading this article, you will get more such tips and guidance for figuring out the reason behind your losses so that you can stop the cycle of repetitive losses that limits your profit potential and growth as a trader. 

• Find the Reason Behind Your Losing Streak 

There is a reason behind everything that happens in our lives, and finding the root cause allows us to move forward with a cautious approach. The same theory applies to the results you get in forex trading. There is a reason behind your losing streak, and you need to find that to take corrective action. Is it because of overtrading? Are you making decisions under the influence of emotions without applying any logic? Is it because your strategy is not working in certain market situations, or is it because of your own incompetence as a trader? 

Once you know the reason, you can start thinking about the solutions for the underlying issue. You may need to sharpen your skills or enhance your knowledge to gain an edge as a trader. Sometimes, you discover that the issue is nothing but emotional trading or overtrading. In that case, you need to gain control over your mind and stop giving in to the urges by managing your emotions like a pro. You need to make use of tools like trading calculators to make timely trading decisions based on accurate data and precise calculations. 

Calculating pips, position size, potential profits and margin requirements is very important for easily carrying out the trading process. Hence, you need to make sure that you are not missing out on any piece of information, both fundamental and technical. Mastering technical analysis is the first step towards profitable trades in the forex market when you are trading shorter timeframes. Those who trade longer timeframes should also combine fundamental analysis while taking an overnight risk by keeping an open position for an extended period of time. 

• Identify Your Trading Mistakes 

Both beginners and experienced traders may end up losing more trades due to common trading mistakes. A perfect example of this is trying to trade a false breakout, as many times traders think they are seeing a breakout but end up being caught up in a fake breakout. Such mistakes happen, and they can only be recognised later on by reviewing your trading history or referring to your trading journal, where you record the trade ideas. These mistakes can be avoided by not jumping to conclusions early and waiting for the market to move more, confirming your analysis. 

Newbie traders are more prone to making serious mistakes, such as trading without a stop loss, taking excess leverage, and more. Because they are underestimating the risk and want to make quick profits by risking more, however, this mostly results in huge losses. One way to avoid losing money due to beginner mistakes is to start practising trading in a demo account. You will not be risking any real money in demo trading and will be using virtual funds instead for a realistic trading experience and results. Hence, you are free to make mistakes during the learning process.  

• Work on Risk Management Strategies

A trader without profound knowledge of risk management will go nowhere in the long run. Because each and every trader is being exposed to market risk, and your profitability or success depends on how you deal with this risk. We have no control over how the market moves while we open a position, but we can always plan for a quick exit if the market ends up being unfavourable. This plan is what we refer to as a stop-loss order, which minimises the potential losses to a great extent. 

But stop loss is not the only tool for risk management, as position sizing is equally important. The size of your trades needs to be well-aligned with your profit targets and risk tolerance. Your profit potential is higher when you open larger-sized trades, but your risk exposure is just as high. Hence, you need to strike a balance between the two, which is done by optimal position sizing. You should never risk more than 2% of your trading capital on a single trade, as anything above 2% will lead to a bigger drawdown when there is a loss. 

Besides limiting your risk per trade, you should also fix a risk/reward ratio that justifies the risk that you are taking for a trade. Your reward needs to be greater than the risk you take, and if not, the trade is surely not worth the risk. When you have a good risk/reward ratio, your account will not be at the risk of being blown up even after a losing streak, as your profits would be enough to cover up the losses that happened. 

You need to learn many more things about risk management to avoid or minimise losses, and having a sound risk management plan is important to ensure the success of your trading plan or strategy.  

• Trade Demo Account With a Serious Approach 

We already talked about demo trading for learning and practice without the risk of losing real money. However, many beginners don’t take demo trading seriously, as there is no money involved. They just place random trades without much thought, and they even place too many trades since there is no risk of losing, and this habit of overtrading will become a problem while going live. Hence, you need to start demo trading with a clearly defined strategy and follow the risk management rules. 

When you do this, transitioning to a live account will be easier, and you will also get to know how your strategy will work in the present market situation by placing trading in real-time market conditions. However, your trades are not connected to the actual market, and you won’t experience situations like order queueing, which are normal occurrences in live trading as the broker has to match the orders we place. 

This is the only difference you notice between a real and demo account, along with the absence of emotions. But suppose you are able to consider such aspects in demo trading and train your mind to treat the demo account like a real one. In that case, you will gain valuable trading experience, which will help you avoid unwanted losses in actual trading as demo account practice improves your decision-making skills. 

• Patience and Trading Discipline 

The last tip is that you need to develop two key traits vital for a trader’s success. The first one is patience, and the 2nd one is trading discipline, which is interconnected. Lack of patience is the root cause behind emotional trading and overtrading, which is also about not following a disciplined approach. Those who are disciplined will be patient while dealing with setbacks and failures. However, those who are restless will struggle to stick with their plan and are more prone to losses as they deviate from their strategy. 

In order to have these qualities, traders need to learn about trading psychology. Trading psychology studies the impact and influence of a trader’s mindset and emotional state on their trading decisions. Stress, fear, greed, anxiety, and excitement are the prominent emotions that a forex trader experiences during the trading process. But your decisions and actions should not be driven by these emotions, as you need to be logical and rational while navigating the volatile currency market. So, having patience and trading discipline reduces your potential losses.  

Conclusion

In a nutshell, trading with a calm and composed mind is the most important step towards trading success. Knowledge and skills are vital for profitability, but your mindset is also influential when trading in the dynamic forex market. Hence, you need to take some time to study trading psychology before proceeding with your trading plan. Demo accounts can help you a lot during the learning period, but you should never stop learning, even after switching to a live account, as there is always room for improvement in trading.