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How To Handle Potential Losses In The Forex Industry

April 10, 2009 by  
Filed under Forex Market

Many individuals play the forex market not for the exciting environment, but for the profitable outcome – or rather potential profitable outcome. It is a stressful setting filled with many ‘ups and downs’ moving at highly treacherous speeds. However, as is aforementioned it can be rather lucrative thus making the stress worthwhile; but, if you are not fortunate enough to experience positive trading, copious amounts can be lost. If these losses are incurred, there is no way to reclaim the lost capital. It is at this point that one must not only worry about the financial effects, but also the psychological effects as many traders have found themselves in psychological distress. Methods to avoid this type of difficulty are known as coping strategies.

One of the most efficient coping strategies or methods is that of learning from ones mistakes. It is a simple and old-fashioned method which many individuals have been taught for several years by their parents. However, talking about it and acting upon it are two extremely contrary behaviours.

The first aspect of this coping strategy is to understand and accept the downfall that has befallen one. Through acceptance of your circumstances it is easier to identify the incorrect behaviours in the original act and adjust them. By identification and adjustment, one will be able to perform more efficiently with a psychologically sound and amended strategy.

It must be mentioned that there are no ‘quick fixes’ to any problem. In order to handle this difficulty completely and acknowledging the error is only one aspect to this coping mechanism. To ensure the mistake does not occur again you must continuously apply the gained knowledge to your overall trading strategy.

A second coping strategy which may be considered involves a the exchanging of money. When an individual makes profits on the forex market, it is natural to purchase more luxuries and enjoy one’s hard-earned wealth. However, when this trader faces several losses some debt may develop as the capital will decrease disallowing for irrational expenditure. A simple solution, and the next coping strategy, is to halt all unnecessary expenses and save some money.

The final coping mechanism worth mentioning is that of the economists ‘intellectualisation’. Intellectualisation is an abstract term which involves the concept of acceptance. It suggests the individuals acknowledgement and complete acceptance of the current negative happenings. It also suggests the individuals understanding there is nothing he can do to prevent the events as they have passed, all he can do is prepare for the future. This thinking strategy has been noted as the most successful when dealing with psychological distress.

Just as there are healthy coping strategies to assist one in overcoming detrimental psychological effects, there are also unhealthy coping strategies which cause one to repress any positive treatment. These are known in psychological circles as defence mechanisms with the most well-known being suppression and projection.

As can be seen, the forex market can be a highly beneficial industry in which to earn some money. However, there is the potential whereby one can cause severe psychological distress to oneself should losses be incurred. If this is the case there are coping strategies which can be employed to protect yourself, and as can be seen they are advantageous.

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