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The Four Stages of Loss in Forex Trading

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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.

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