Even though I know that cutting losses is important, why can't I cut them?

When you start FX, there are words you will hear fairly early.

“Cutting losses is important.”

Probably, many people know this.

I knew it as well.

Even so, in the moments when your own money is actually being reduced, you can’t cut it so easily.

What you know and what you can do are different

For example, suppose you have a unrealized loss of 10,000 yen.

If you haven’t closed the position yet,

you can think, “It’s negative now, but it might bounce back eventually.”

...

But the instant you cut, that 10,000 yen loss is confirmed.

Then,

“I’ll wait a little longer.”

“I’d hate it if it came back right after I cut here.”

feelings arise.

In your head,

you understand,

“If the conditions collapse, I will cut.”

Nevertheless, when the moment actually comes to realize the loss, you hesitate.

The “experience of it returning” makes the next cut harder

What’s more troublesome is the

experience of waiting without cutting and it actually returning

.

If you have ever,

thought,

“I’m glad I didn’t cut,”

you become prone to expect it again.

“It came back before as well.”

“It might come back this time too.”

As you think like that, the unrealized loss grows larger.

Then, this time,

“If it has come this far, I can’t cut now.”

The problem is,

one action that worked once does not necessarily work next time

The market is not the same every time.

People don’t feel profits and losses the same way

Cutting losses is not hard only because the will is weak.

Research also shows that people do not feel profits and losses the same way.

When you are in profit,

you tend to think, “Let’s lock it in before it disappears.”

On the other hand, when you are in a loss,

you tend to think, “I don’t want to realize it yet.”

In FX,

there are times when you want to realize profits quickly and hold losses longer

that can occur.

After losing, the urge to “make it back” appears

Even after cutting losses, caution is still needed.

For example, suppose you lose 30,000 yen that day.

Then,

you might think, “If I can make back another 30,000 yen, I’ll break even for today.”

But, from the market’s perspective,

there is no meaning to you losing 30,000 yen today.

It does not make the next trade easier to win.

Even so, people

tend to, not chart, but base their next trade on their own profit and loss.

From here,

you enter in places you normally wouldn’t.

you raise the lot size.

you increase the number of trades.

This is how it can lead you astray.

Even after winning, your judgment changes

The danger isn’t only after a loss.

After several successive profits,

you tend to think, “I finally understand.”

“It’s probably okay to increase the lot a little.”

This is easy to think.

This book also touches on actions that take on more risk after past profits and actions that try to recoup past losses to bring the balance back near zero.

In other words,

it’s not guaranteed that you will make the same judgments when you are winning as when you are losing

because the situation isn’t the same.

Don’t leave everything to your current self

So what should you do?

What this book considers important is

to decide in advance during a calm state

.

For example,

how much trading volume to use.

How much loss to tolerate in one trade.

Where to cut losses.

On days with big losses, where to stop trading.

If you start thinking about these things only after you have a unrealized loss, emotions tend to run high.

Cutting losses is not only a matter of “knowledge”

In FX,

you learn techniques.

you read charts.

you study economic indicators.

That is often what you focus on.

But,

knowing how you behave when you lose is equally important

.

What happens when you see a loss?

Do you hope it will return?

Do you want to recover it?

Do you become overconfident after winning?

If you understand cutting losses but still cannot execute,

before seeking a new method,

it may be better to observe how you react to losses.

Cutting losses isn’t just because you don’t know the rules.

The you who knows the rules and the you who is actually losing money won’t move the same way.

Understanding this is quite important for continuing in FX.