When you try to "recoup" a loss in FX, another game begins.
After losing in FX,
“Let me recover it in the next trade.”
Have you ever thought like that?
At first, I was looking at charts.
There were rules.
“I’ll enter under these conditions.”
“If it goes this far against me, I’ll cut my losses.”
“Only up to this amount at risk per trade.”
But the moment you lose, the goal changes.
Not to make good trades, but to recover the money you lost.
From here, a different game begins.
Start looking at your account balance, not the chart
For example, suppose you lose 300,000 yen.
Then,
“If I can recover another 300,000 yen, I’ll be back to where I started.”
You begin to think.
Usually you would risk only 100,000 yen, but next you take 200,000 yen.
If you lose more, 300,000 yen.
Because you want to recover quickly, the number of trades increases.
You enter even at places you would normally skip.
At this time, what you are watching isn’t market conditions.
How much you have lostis.
Whether the dollar/yen goes up or down is less important than
“How many more yen do I need to recover to break even?”
as the core of your judgment.
When “recouping” becomes the goal, the rules change
This is troublesome.
In the first plan,
“Only trade when the conditions are met.”
That was supposed to be the case.
But when you’re trying to recover losses,
it changes to
“Because profits are needed, I trade.”
Then,
you increase lot sizes.
you increase the number of trades.
you delay losses.
you average down (nampin).
you take trades you wouldn’t normally take.
In other words,
you appear to be doing the same FX, but you are actually playing a different game.
I think this is the fear of chasing losses.
The psychology of “pursuing losses”
In gambling research, continuing to bet after a loss or increasing stake or risk to recover losses is called loss chasing.
Of course, FX and gambling are not the same thing.
But,
when people incur losses they have a desire to recover them and take on different risks than usual
—this is a useful observation.
The bigger the loss, the harder it is to recover
If you lose 100 million and drop by 10%, you’re at 90 million.
To return to the original 100 million,
you need more than 10% profit, about 11.1%.
So, what if you lose 50% and have 500,000 yen?
To return to 1,000,000 yen,
you need to double it (100% increase).
As losses grow, the required recovery profit becomes larger.
Then,
you feel that you must bet bigger to recover.
And if you really increase the lot size, the chance of a bigger loss also increases.
Immediately after a loss, resolve not to chase recovery
That’s why I think you should
not only decide how much to place on stop losses
but also decide what to do after you cut losses.
For example,
today, I won’t trade anymore.
I won’t increase the lot size.
I won’t try to recover on the same day.
I won’t use the amount of losses as a reason for the next entry.
Even this alone makes a big difference.
What you need after a loss is not to immediately return to where you were,
but to return to your usual judgment
perhaps.
Be careful when “the remaining amount to recover” crosses your mind
What makes FX dangerous isn’t just losing.
After a loss,
“An extra 50,000 yen”
“An extra 100,000 yen”
“I want to recover it within today”
and so on.
In that moment,
the purpose of trading may shift from watching the market
to recovering your losses.
In such times, instead of re-reading the chart,
it may be better to close the app.
You don’t have to recover.
Today’s loss can end today as is.
Having the option “not to recover” is also a form of risk management.