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Accepting Losses Reasonably in Trading (Part 1)

Losses are an inseparable part of the trading world, and every trader will inevitably experience them. However, it's important for traders to understand how to minimize losses and face them reasonably. One certainty in forex trading is that losses will occur, and they cannot be avoided. However, those who overly rely on large profits often struggle to accept this reality.

The question "Cut loss?" often arises when a trader realizes that their trading position is wrong, losses are significant, and fear begins to emerge because stop loss was not used. Beginner traders often attempt to avoid this reality in various ways, such as using hedging or locking techniques, which involve opening new positions that are opposite to previous positions. This technique is used in the hope that price movements will reverse, thus minimizing losses or breaking even.

However, in practice, this technique often fails because it is difficult to accurately predict the direction of price movements. If a trader is wrong in opening the locked position, the losses incurred will be even greater because the locked-in pip losses become larger. Traders who fail repeatedly with this technique tend to become frustrated and may even abandon forex trading.

In forex trading, no matter how good your trading strategy and plan are, if you do not manage risk properly, it is difficult to achieve consistent long-term profits. In this article, James Stanley, a forex trading instructor, will discuss the concept of reasonable losses. According to him, you must learn to accept losses before you can achieve actual profits.

Why are losses important? You cannot predict with certainty what will happen in the future, and this applies to other traders as well. However, many people can predict price movements every day, such as those working in major banks, hedge fund managers, and retail traders. However, it is important to view each trade as an idea or opportunity. Like other ideas in life, there is a possibility that an idea will not go well, and you must be able to change it if that happens.

The step to take when realizing that you are wrong is to stop making mistakes and start acting correctly. The way to act correctly is by closing your trading position. You need to incur losses. Although it is difficult to do, it is far better than continuing to hope that price movements will reverse, while you do not know what will happen next.

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