The worst-case scenario for the many traders is a blown account, this is where your broker has decided to close all of your trades as the amount of margin left in your account has decreased to a level so low that the broker needs to close the account to help prevent you from going into a negative balance. This is the law of the law, you cannot lose any more and your account is now pretty much useless so the only thing left to do is to withdraw the little money that is left in it and move on, right?
For many that is the reality, they have lost all the money that they have put in, for some, that money was money that they actually needed and so are now in a situation where they are in serious financial issues, so there is no coming back. For some others it is the opposite, they will now plow back in with even more money in the hope to try and win back the money that they had lost. This is a dangerous game and those that play like this are often burnt a second or third time until they either give up or have lost everything that they had. This of course goes against everything that you would have been taught about trading and risk management, but after a blown account, emotions can take over and this sort of behaviour is a regular occurrence.
We need to remember that over 90% of traders seem to fail within the first year of their trading, so that is a lot of blow accounts. There are many reasons why someone may end up blowing their account, the lack of discipline, not following trading plans, gambling, revenge trading, and more. Even though a lot of us experience it, we need to remember that even some of the best traders in the world right now have at some point hit rock bottom and own an account. This is an indication to those in a similar situation that it is not the end of the world, there are ways to improve and to try again and to then be successful.
So we are going to be looking at some of the things that you will need to do in order to get through a blown account, things that you can do once you have a blown account, how you can get past it and then back on track to becoming a profitable and successful trader.
Accepting the Loss
The only way to really get over something bad happening, in this case, the loss of an account is to simply accept it. This is far easier for some than it is for others though. For many it is hard to accept things they like to blame the markets rather than themselves, they let the negativity sink in, they then may even begin to blame themselves, telling themselves that they are not good enough and that there is no point in continuing to trade.
What we need to do instead is to accept that these things happen, we need to have an understanding that losses happen, losses are a part of trading, every single trader in the world has experienced them and will continue to. We need to accept this, and then we need to be able to talk to ourselves, tell yourself that we are able to do better, we are able to learn from this and we are able to improve. Use this loss as a learning tool instead of something to beat ourselves up about.
So we have accepted the loss, now we need to work out how we are going to move on. For many, the best teacher is where we get something wrong. We can look back at exactly what we did and work out where we went wrong. Hopefully, you have a trading journal on the go, if you do not then make sure that you get one set up as soon as possible. We can use the trading journal to look back at our trades, why we took them when we got out of them, and more, this gives us a good insight into our trading habits as well as the individual trades that have been made.
We need to look at some specific aspects of our trading, the risk management that we are implementing is one of the major ones. Normally when an account blows it means that something within our risk management went wrong, as the entire reason it has been put in place is to prevent an account from blowing. Work out whether you were distracted when you were trading or if you actually stuck to your trading plan. These things need to be looked at and reviewed in order to ensure that you are consistent with your trading and not letting emotions or greed get the better of you, especially after a large win or loss.
Going Back to Demo
For many, this may be seen as a step back, but it shouldn’t be, it should be seen as an intermittent, a break in the live account to work out some of the kinks that we are experiencing. There is nothing wrong with going back to a demo account, think about all the best athletes in the world, they don’t only take part in competitions, they are constantly practicing and training in a non-competitive environment which to us is the demo account. There is absolutely o shame in going back to a demo account, in fact, it should be encouraged.
Every time that you make a change you need to try it out on a demo account, in a situation where the market has humbled you, they have caused you to blow an account. This does not mean that you are necessarily a bad trader, it just means that something is wrong with something that you are doing. Due to this, we need to go back to test things out again, to find what was wrong, to change something and to then work out whether the changes are effective or not. Just do not be afraid to take that step back to a demo account, we all need to do it at one point or another during our trading careers.
Open Up a New Account
So we have been practicing on a demo account, we have worked out some of the things that went wrong and we have been consistent when practicing with the changes. It is not time to open up a new account. We suggest a new account for a couple of reasons, starting fresh means that the past is not looming over you, when you look at your account history you do not see the losses and so it is easier to analyse the current trading that you are doing. It also allows you to keep that blown account separate as a reminder of why you are doing what you are doing now and that you still need to remain vigilant and careful when trading. This time, stick to your trading plan and the changes you have made, do not let your emotions get the better of you and you will see a lot of improvements.
So those are a few of the things that you can do if you have blown an account, getting back on your feet is not easy, but it is certainly possible. Learn from your mistakes, practice, and implement them without allowing the emotions of the most money to take over are key. Do this and you will be on your way to becoming far more profitable and consistent in the future.