What Are The Stages of Loss in Forex Trading?

What Are The Stages of Loss in Forex Trading

Trading in its entirety includes winning and losing. You will burn yourself psychologically if you solely focus on winning, especially as a newbie.

However, losing doesn’t just happen – it occurs in stages. And if not carefully handled, you may eventually find yourself out of the market, whether by blowing your account or completely losing the motivation to trade. Either way, you are the ultimate loser. As a trading coach with 15+ years of experience, I never want my students to experience this.

Understanding the various stages of loss in forex trading is essential to avoid such a scenario. And that is why I have written this article. So, let’s dive right in!

What Are The Stages of Loss In Forex Trading?

There are four major stages of loss associated with forex trading: denial, rationalization, depression, and acceptance.

1.      The Denial Stage

This is the first stage of loss in forex trading and typically happens when you have just made your first few losses. At this stage, you’ll find yourself denying, absolving yourself of the blames for these losses. You’ll blame everyone, sometimes including the forex broker, but yourself.

Regardless of the excuses, people deny to make themselves feel better. While this may, at best, serve as a coping mechanism for some traders, the disadvantages outweigh its advantages.

Protecting your ego is one of the major causes of denial. As a newbie trader, it’s typical to believe you’ve “known everything.” Well, is that true? You may never find out until you become intentional with your trades. This includes avoiding denial and actually taking proactive measures to identify and deal with whatever may have caused your recent losing streak – even if it’s you.

2.      The Rationalization Stage

This is very similar to the Denial stage. Here, you identify everything you did right but not what you did wrong. What you did that caused these losses won’t matter to you; instead, you’ll focus on where you “think” you outdid yourself.

This may include your perfectly-place stop loss, a well-setup trading plan, the best sniper entry ever, etc. Knowing all these are fine, but where did you get it wrong? What mistake did you make? If you cannot answer these questions, then be prepared to fail (lose) repeatedly in the nearest future.

3.      The Depression Stage

You’ve blamed everyone else apart from yourself; now, it’s time to blame yourself. Beating yourself too hard will affect your mental health and, with time, leaves you to slip into depression. If you continue trading at this stage, only luck can save you from blowing your trading account.

At this stage, you’ll question your trading skill, experience, etc. Unfortunately, blaming yourself doesn’t provide solutions. You’ve made a mistake; nothing can be done again. But what exactly is this “mistake?”

In extreme cases, you may relinquish forex trading and pursue other ventures at this stage. The Depression stage is a dark hole, the best way to survive is not to enter at all.

4.      The Acceptance Stage

This is the final phase of the four stages of loss in forex trading. Here, you’re gradually healing from depression and realizing how hard you’ve been on yourself. As the name suggests, you’ve accepted fate and preparing to forge ahead.

However, note that accepting fate doesn’t mean you’re “okay” with what has happened. Instead, it means you now know better, understanding the irreversibility of the loss and the need to bounce back as quickly as possible. Here, you have identified the actual mistakes and working on bettering your craft in this regard.

I like to define the acceptance stage as “the phase where you refuse to deny your loss, but instead accept the reality, growing, and moving on to setting up better trades.”

FAQs on the Stages of Loss in Forex Trading

What Causes Loss in Forex Trading?

Various things can make you lose your money in forex trading. And this includes overtrading, self-doubt, market addiction, unrealistic expectations, etc.

When I Lose Money in Forex, Where Does It Go To?

When you win, someone else takes the hit. Therefore, when you lose (take the hit), someone else on the other side of the trade is winning.

Can Experienced Traders Lose Their Money, Too?

No one is entirely immune from losing trades. Everyone can make a shitload of money, and everyone, with just one mistake, can blow their trading account.

Conclusion

You can only control your reaction and not the market. The more emotional you get when you lose, the longer you transition through these four stages of loss in forex trading. And this means the more money you’ll continue to lose.

Have more questions? Don’t hesitate to ask; I’ll respond as soon as possible.

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