I received an email from John Woo who wrote:
I’m a new Forex trader and my trading strategy had consistent profit in the past few months. However, I encountered losses with my strategy this month. What is your advice for a new trader when this happens? Should I stop trading for a while and let my emotions cool?
I hope you have a trading journal to record all your previous trades. My first recommendation is stop trading, review all your past trades and the reasons you took them.
It is normal to fall into a state of depression when something that was working fine seems to stop working. To get out of this mentality, review your previous trades to see if you executed them according to the forex strategies in your plan.
If you executed your trades consistently and according to your plan, you will have to accept your losses based on your trading strategy’s winning probability. For example, if your strategy’s winning probability is 50%, you will win 5 and lose 5 out of every 10 trades. However, you do not know the sequence of occurrence. That means there is a possibility of winning 5 in a row and losing the next 5, or losing 5 in a row and winning the next 5, or it can be any random sequence in between.
The most common mistake new traders make is constantly changing their trading strategies when they suffer a string of consecutive losses. In fact, that is when they should continue using their strategies. With the probability logic mentioned above, suffering a string of losses will bring you closer to the next winning trade IF you maintain the same forex strategies.
The reason traders change their forex strategy/method frequently is that they are subconsciously searching for the “holy grail” of trading, a method where they can win 100% of the time. Understand that this does not exist and the sooner you can accept this reality, the better.
If your trading strategy has a winning probability of 60% to 70%, it is considered to have extremely good odds in the world of Forex trading. The longer you trade, the better the odds will play out. Learn to view your trading as a journey where you will take hundreds or even thousands of trades. Do not allow a single losing month to discourage you. Continue this journey with strict discipline and perseverance. You will be rewarded for your efforts in due time.
To your success as a profitable trader,