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Forex Basics

I´ve Lost Everything in the Markets! (And Here’s What I’ve Learned…)

I have lost everything in stock! Who has never heard this catastrophic phrase? Everyone knows the story of someone who invested money in the stock market and lost it, or you hear on the news that the stock market has plummeted by 3%!! Almost as if the world were to end immediately because of this sudden fall, well, I will tell you the truth about all this.

For starters there are many people who have lost their money on the stock market, right, even whole pension plans and life savings that have disappeared in a few hours, but… Wait! Pension plans? Savings? This smells like a bank! Indeed, the people who lose so much money in the stock market are because they give carte blanche to their banks to play stock with their savings that have cost them so much sweat.

Let’s tell you a secret, professional traders never play more than 1% of their total capital, that is, for a $10,000 account, a professional trader will never be willing to lose more than $100 in a single trade, leaving in the worst-case scenario the account at $9,900. True, some traders get to use up to 2% of the account, but it’s not the usual thing.

So the logical deduction we draw is this: If professional traders manage their money with such caution and banks don’t, don’t banks have professional traders in their ranks? Yes, of course, they do, but the bank does not want to grow your current account, it wants to grow its own and its stock value, therefore they will devote themselves to buying shares of their own bank, their insurance company, and other companies of their business group. If you have a stock-exchange-linked pension plan, why don’t you look at what stock you have bought? I am convinced that they will be yours and from companies where they have some power.

Now let’s imagine that the value of our bank, after going up, is about to fall, the traders of the bank see it and think: “If now I sell the shares of my dear client, you will have profits and I will be able to invest your money in the company X that looks bullish.” That would be nice, wouldn’t it? Not so, these traders think in the following way: “If the stocks of our bank are about to fall, it is because people will sell stocks, then if I sell those of my customers, the value will fall even more!” The solution of these traders, in the best of cases, is to keep your position in full decline, pray that they do not buy more shares from their own bank in full collapse to try to maintain the current price.

Do you understand now why so many people lose money in the stock market?

So how to survive in the stock market and not lose everything? As you saw the first thing is to avoid the banks, they are not very interested in your financial health (you just have to look at the crisis that we carry), so how do we do it?

First, we will decide how much money we want to invest, never put money that you will need to live and pay the bills, it is a risk that will only put pressure on us and is not worth risking so much.

Imagine that we capitalize with 1000€ to invest in the currency market (Forex), that is to say we open an account at a broker and transfer the money. About which broker to choose, their advantages, disadvantages and how they work in general we will talk at length in other posts, for now, let’s focus on imagining that we have our trading account with 1000€.

Nowadays in forex, you can play from 0.1€ per pip to hundreds of euros per pip, logically if you are new you should start betting according to your account. I explain, suppose you usually do intraday operations with a 20 pips Stop Loss and buying 1 micro lot (the least possible), then the minimum you can play is:

20pips * 0,1€/pips * 1 micro lot = 2€ from your account

These 2€ represent 0.2% of your money invested, therefore, if you have failed in your analysis you only lose this, nothing more! Now your account would have 998€ positive.

By operating in this way we make sure we survive if we make a mistake in any operation, and continue to make money if we were right, we basically have total control over our money. If this capital were used by the bank to invest, you’d never know how much you were going to earn or lose.

With this post we want you to see that in the stock market everyone controls their risk, it is literally impossible to lose everything, the Stop Loss and our risk management are in charge of avoiding it.

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Beginners Forex Education Forex Basics

The Four Stages of Loss in Forex Trading

When people hear about the four stages of loss, they tend to think of death, dealing with a break-up, and other life-changing events that can leave you feeling down and out. But did you know that the four stages of loss can be applied to losing money in forex trading as well? 

Stage 1: Denial

In this stage, you first realize that you have made a losing trade. In the first phase, it’s common to try to deny that the loss was your own fault by throwing out excuses that take away the blame from themselves. Perhaps you could blame your broker, or claim that you were distracted because your spouse was speaking to you. Maybe you could say that you just didn’t care that much about the trade in question anyways. Whatever excuse you come up with, the real reason for doing so is that this helps to soften the blow on your ego so that you can move on without doubting yourself. 

On another note – if you ever do truly believe that something else interfered with your trade, like a problem on your broker’s side, you can reach out to their customer support team to get some insight on the issue. If it’s their fault, they will fix it, but you should be prepared to hear that slippage or some other issue is to blame. 

Stage 2: Rationalization

In an attempt to further convince yourself that you did everything right with your losing trade, you will slip into the second stage of loss: rationalization. In this phase, you point out everything you did right. Perhaps you give credit to your solid trading plan, claim that you used the perfect entry point and stop loss, and so on. In the end, the trade still lost money, which points to a mistake being made somewhere along the way. You might have made correct decisions in several key areas, but you’ll need to analyze your plan to find the problem. 

Stage 3: Depression

After trying your best to come up with reasons as to why the loss wasn’t your fault and then trying to rationalize your decisions, you will probably slip into depression. In this stage, traders finally begin to consider that their loss might have been caused by their own actions. It’s good to take some responsibility for the loss, however, you don’t want to make the mistake of being too hard on yourself. Don’t start thinking self-deprecating thoughts that make you gravitate towards quitting. Don’t doubt yourself altogether over one loss. Many experts have explained that they don’t take losses personally – you need to understand the reasons why you lost so that those mistakes can be avoided next time, but don’t sit around beating yourself up over it. You don’t need to give up over something that can be fixed.

Stage 4: Acceptance 

By the time that you reach this stage, you will be able to accept that your mistakes might have contributed to the losing trade while understanding that it isn’t healthy to sit around blaming yourself for everything or to think self-deprecating thoughts. Remember that the market is unpredictable and losses are inevitable, even the best of traders lose sometimes. At this point, you can start looking to move on. It’s possible that you’ll make a winning trade that makes up for the loss, improve your strategy, lower your risk tolerance, or develop a plan to handle losses in a better way. As long as you can walk away with a positive attitude, you will finally be able to accept your loss in a healthy way.