Tag: Fund Management

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Forex Education Forex Risk Management

Every Trader Should Know This About Money Management

Money management is generally the most important factor determining profit or loss in Forex trading strategies. This fact is so often overlooked that it must be repeated again and again. It is one of the key commercial essentials. The management of money itself will not give you a margin of victory-you need a good entry […]

Money management is generally the most important factor determining profit or loss in Forex trading strategies. This fact is so often overlooked that it must be repeated again and again. It is one of the key commercial essentials. The management of money itself will not give you a margin of victory-you need a good entry […]

Money management is generally the most important factor determining profit or loss in Forex trading strategies. This fact is so often overlooked that it must be repeated again and again. It is one of the key commercial essentials. The management of money itself will not give you a margin of victory-you need a good entry into trade and effective exit strategies for that-However, without smart fund management practices, a profit margin will not see your profit potential, and there is even the risk of a total loss.

There are two elements in money management that Forex traders must consider carefully: how much of their account is risked per transaction and the percentage of their account that must always be at risk, measured in full or by some kind of sector. There are no absolute answers to those questions, the best for you will largely depend on your own appetite for risk and your tolerance of loss, temporarily or permanently.

Risks in Your Account

Every time you open an operation you’re risking money. Even if you have a stop-loss, you could suffer a negative slide and lose more than you anticipated. Clearly, if you have many open trades at the same time, even if the whole holds a sense at the individual level, together can contribute to having an unacceptable level of risk. Similarly, if you keep many open trades betting all towards the same currency and in the same direction, you run the risk of a sudden loss beyond what is acceptable. So, it’s a good idea to determine a maximum number of open operations simultaneously; and repeat, but by coin.

For example, it is possible to determine that you will never have more than 2% of your risk account size in open trades or more than 1.5% at risk in a single currency. You should also be very careful when trading in currencies that are linked to another currency by your respective central banks. For example, someone who was short in the Swiss franc last January using even a relatively small amount of leverage of 4: 1 has probably had his account deleted, and this will be independent of whether you have any stop loss, as the movement has been dramatic.

Also, if you are trading with Forex or other instruments that maintain positive correlations, you may also need to put a limit on the total of open transactions that are strongly correlated. This becomes more important if you are operating beyond Forex, for example, oil and the Canadian dollar have a high positive correlation.

The exact amount of maximum risk you must take is up to you but bear in mind that once your account has been reduced by 25%, you need to increase it by 33% just to get back to square one. The lower it gets the worse it gets: a loss of 50% requires a 100% increase!

How Much Risk Per Transaction?

Now that you have some risk limits set for your account in general and by currency type, you must address a different issue as to the amount you must risk per transaction. Of course, it is okay to risk different amounts per operation, but this must be determined systematically.

There are different reasons that need to be analyzed in order to determine the size of the position in your Forex strategies, but any risk per transaction must be calculated as a percentage of its total capital. The capital of the total account can be determined by looking at the amount of cash obtained in your account-you must assume the worst-case scenario, that is, that each open transaction will result in losses.

There are two advantages to this method instead of simply risking the same amount and again this is independent of performance, which is the case when using a predetermined fixed batch size or a fixed amount of cash:

Forex strategies tend to produce payoffs or losses and not a uniform distribution of results. Using a share of capital to quantify the size of each trade, which means you will risk less when you lose and more when you are earning, which tends to maximize winning streaks and minimize bad streaks. You can never completely delete your account! Using a fixed batch size or cash amount could end your account, or at least cause a decline from which you can never recover.

Here are some of the essential elements to consider in determining the amount to be risked per operation:

– What would be the worst performance you could have and what would it look like? Could it deal psychologically with a reduction of 10%, 20%, or even worse? Should it go that far in negative territory?

– The frequency with which you negotiate will also be a factor, as this will have an impact on your maximum fall.

– What are your expected profit and loss percentages? Try your trading again. Let’s take an example, if you have a foreign exchange trading strategy where you plan to lose 80% of your trades, but earn 10 times the risk in the remaining 20%, your transaction risk should be lower than if you were planning to do 3 times your risk in 40% of your operations. And clearly, if you maintain an exit strategy that is flexible, immediately, just make a brief approximation of how it’s likely to turn out over time.

– Is it possible with the size of your account to negotiate as little as possible? Let’s take another example, if you have a $100 trading account, and what you want to risk is 1% for operation, you will have to risk a single penny per pip with a stop-loss of 100 pips. This could be impossible, depending on your broker. However, what you should do is capitalize up or otherwise change your business strategy instead of increasing your risk per transaction if that is the case.

– Is your trading account a savings product or a small amount of venture capital? If your total equity is $25,000 for example, and you have a $10,000 account, you could have less tolerance to falls by comparing it to a $1,000 account.

Always remember that your capital management strategy will act statistically with your earnings rate and the average size of your earnings to directly affect your gains or losses over time.

Stop Loss and Position Size

The stop loss should never be determined based on the minimum that can be allowed. Let’s look at an example… If you want to risk a maximum of $20 per operation, but the minimum size of the position with your broker is allowed to be $1 per pip, therefore this is a horrible reason to put a stop loss of 20 pips and a batch size of $1 per pip! What you could accomplish in this case is look for another broker or increase your trading account balance if you have enough venture capital to invest, or else find a Forex trading strategy that usually uses a stop loss of 20 pips, if you are comfortable with it.

However, it is legitimate to determine the stop loss by measuring average volatility, and, especially in trend trading, this in itself can be a very powerful money management strategy. For example, using a multiple of the average 20-day range to determine the cap, and then basing the size of the position on the percentage of account capital is a very common money management method within the trend strategies of Forex trading.

Even if you base your stop loss on technical levels, it may still be worth using a good measure of volatility to calculate the size of the position. For example, if the average range of 20 days is twice the range in a very long term, you can risk half of the reference risk per pip related to your account’s capital.

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Forex Money Management

How Much Should You Be Spending on Forex Trading?

There’s a lot to figure out once you make the decision to become a forex trader. What broker to use, when and how to trade, and managing risk is just the tip of the iceberg. One question that many beginners actually find themselves struggling with involves figuring out how much money to initially deposit into […]

There’s a lot to figure out once you make the decision to become a forex trader. What broker to use, when and how to trade, and managing risk is just the tip of the iceberg. One question that many beginners actually find themselves struggling with involves figuring out how much money to initially deposit into […]

There’s a lot to figure out once you make the decision to become a forex trader. What broker to use, when and how to trade, and managing risk is just the tip of the iceberg. One question that many beginners actually find themselves struggling with involves figuring out how much money to initially deposit into their trading account and how much they should risk on each trade from there. 

Making an Initial Deposit

There are a few advantages to making both smaller and larger initial deposits. Fortunately, most forex brokers offer different account types that can appeal to traders that are looking to deposit different ranges of money, so you shouldn’t feel pressured to deposit hundreds of dollars if you don’t want to. 

Small Deposits 

Most brokers do offer cheaper account types for beginners, so this is definitely an option if you aren’t comfortable depositing a larger amount of money at first. Plus, you can always go back and deposit more money later on. Here are the perks to making a smaller first deposit of around $10 – $100:

  • You can open a micro/mini/cent account, which allows for smaller lot sizes to be traded, making them good starter accounts.
  • You can test the broker’s deposit methods and conditions without putting a lot of money on the line.
  • If you aren’t comfortable making a bigger deposit, this will allow you to become more familiar with the broker’s conditions so that you can deposit more later on.
  • This is a good way to get started trading with minimal risk and makes opening a trading account more of a realistic option for more timid beginners. 

While a smaller deposit might be a better option for beginners, there are also a few disadvantages to consider:

  • Account types that accept smaller deposits typically come with higher spreads and fees, so you’ll wind up bringing home less of your profits. 
  • Some brokers don’t allow mini/micro/cent account holders to partake in promotional opportunities and you might miss out on other perks.
  • Your small deposit won’t be enough to trade with for a long period of time, meaning that you’ll need to top up your account more often if you run out of funds. 

Large Deposits

Perhaps you’re leaning in the opposite direction and considering that you should make a larger deposit of a few hundred or thousand dollars. As long as you’ve done your research and chosen a trustworthy broker, then this can be a great decision that offers several benefits:

  • Making a larger initial deposit will open the door to better account types that offer tighter spreads and lower commission charges through most brokers.
  • Some brokers offer special perks on these better account types, like fee-free withdrawals, larger bonuses, and more. 
  • Your deposit should provide you with enough money to trade for quite a while without needing to turn around and deposit more money quickly. 

A Quick Tip

There’s one important thing to remember as a trader: you should never deposit more money than you can personally afford. Larger deposits may come with more benefits, however, there’s no reason to put yourself into debt when it’s possible to open a trading account with less than $100 through several online brokers. There is no guarantee you will get that money back, so don’t pull out of money that is meant to be spent on groceries, bills, or other necessities. Having the discipline and financial wisdom to only risk what you can afford is one of many qualities that are necessary if you want to be a successful trader. 

Conclusion: How Much to Risk?

You probably have an idea of whether you’re looking to invest a small or large amount of money at this point, but there’s still another question left to answer: How much will you risk on each trade? This is really more of a personal decision, but there are a few things you should know before you decide:

  • Some of the most common beginner mistakes involve risking too much on each trade, trading with too high of a leverage, and failing to take precautions to minimize risk.
  • The more you risk, the faster you could drain your account, especially in the beginning.
  • Experts actually recommend risking around 1% of your total account balance on each trade. If you have $100 in your trading account, this means you’d only risk $1 per trade. 

Perhaps you wanted to risk a larger amount of money so that you could profit more quickly. One professional tip states that you should calculate the risk you should take based on your confidence in each individual trade. For example, you could stick with the 1% account balance rule on trades that you’re only fairly confident about, but risk slightly more on trades that you feel much more confident about. This will allow you to make slightly larger profits while remaining careful. Of course, this is only a suggestion, so you may want to look for other tips online if you’re looking to do things differently.

At the end of the day, only you can decide how much to deposit and risk based on your personal financial situation. However, there is one rule you should always follow: never invest or risk more money than you’re willing to lose.

Categories
Forex Risk Management

Ways to Keep Your FX Trade Earnings Consistent

Once you start making money as a forex trader, you’ll never want it to stop. Sadly, none of us are safe from trading fallout and you just might find yourself at the end of a string of losing trades if you aren’t careful. If you want to keep making profits consistently without falling victim to […]

Once you start making money as a forex trader, you’ll never want it to stop. Sadly, none of us are safe from trading fallout and you just might find yourself at the end of a string of losing trades if you aren’t careful. If you want to keep making profits consistently without falling victim to […]

Once you start making money as a forex trader, you’ll never want it to stop. Sadly, none of us are safe from trading fallout and you just might find yourself at the end of a string of losing trades if you aren’t careful. If you want to keep making profits consistently without falling victim to this problem, try following these tips:

Limit Your Losses

While we’re often thinking of how much money we could make on each trade, it’s more important to focus on avoiding losses. If you risk a lot on one trade, you might get lucky and profit, but you have to think of how much money you could lose as well. If you go risking 10% or more on each trade, you’re far more likely to blow your account. Think slow and steady rather than risking larger amounts as if you were gambling. When it comes to limiting these losses, different traders use different methods.

Using a stop loss is a common way to ensure that you don’t lose too much, but you’ll also want to think of your risk tolerance for each trade. You might prefer to risk a certain percentage of your account balance on each trade based on the trade’s risk to reward ratio. Everyone has their own risk tolerance, but you shouldn’t be risking large amounts of money on each trade you take. 

Know your Strategy

You can’t expect to keep consistent profits coming in if you don’t know the ins and outs of your chosen trading strategy. You’ll want to start by choosing a strategy that works for you depending on how much time you have available to trade and you’ll also need to ensure it isn’t too difficult. From there, you’ll need to figure out the strengths and weaknesses associated with your plan. 

Only Risk what you Can Afford to Lose!

You should never deposit money into your trading account that you can’t lose, so don’t even think of depositing money needed for necessities. You’re always hoping to make money, but you have to remember that there could be times when things don’t go in your favor. You’ll also want to think of how much you’re actually willing to lose on each trade, which goes hand in hand with our first tip that covers limiting your losses. 

Be Patient! 

Sometimes, you’ll just need to sit back and do nothing as a trader. Some struggle with this because they feel unproductive by doing nothing. Others are simply addicted to the rush of trading so they enter trades even when evidence doesn’t support those decisions. This can cause you to lose money and will certainly have a negative effect on your profits. 

Don’t Give Up!

The reason why most traders fail isn’t that trading is too hard, it’s because they give up too easily. One bad day, a few losses or a blown account are enough to send some traders packing for good because they decide that trading isn’t worth it or they just aren’t good at it. The truth is that the mistakes that caused those losses could have often been avoided, but many beginners just don’t put enough time into research and figuring out what they’re doing wrong. If you want to make consistent profits as a trader, you have to hang in there and work on any mistakes that are affecting your profits.

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Forex Basic Strategies

How to Quickly Recover from a Blown Trading Account

Having your trading account reach a $0 balance can feel worse than a bad heartbreak. Unfortunately, this can happen to the best of us, whether you’re still beginning or considered to be more of an intermediate level trader. Some traders that blow their account give up entirely because they convince themselves that they aren’t good […]

Having your trading account reach a $0 balance can feel worse than a bad heartbreak. Unfortunately, this can happen to the best of us, whether you’re still beginning or considered to be more of an intermediate level trader. Some traders that blow their account give up entirely because they convince themselves that they aren’t good […]

Having your trading account reach a $0 balance can feel worse than a bad heartbreak. Unfortunately, this can happen to the best of us, whether you’re still beginning or considered to be more of an intermediate level trader. Some traders that blow their account give up entirely because they convince themselves that they aren’t good enough or they simply can’t bring themselves to deposit more money they might lose. However, losing your account balance doesn’t mean you should give up, as many successful traders have been there before. If you’re struggling to recover after blowing through your account balance, take a look at our tips below to keep yourself in the game.

Acceptance 

 Accepting the fact that you blew your account can be difficult. Some traders make excuses as to why they weren’t the problem and place blame on other factors to avoid taking a blow to their ego. Others go the opposite route and impose a lot of self-blame on themselves. They might think thoughts like “I’m not good enough” or “Maybe I should just give up”. Some never trade again because of this.

Although blowing your trading account is not ideal, it is also something that happens. It’s important to understand that trading is risky, and this is something that could happen to anyone. Once you’re able to look at the problem in a healthy light, you’ll be more prepared to take steps to deal with it.  

Ask yourself What Happened

After accepting your loss, you’ll need to look into the problem to find out what actually happened. The best traders actually use the opportunity to learn from their mistakes, so you’ll want to take a detailed look at each trade you’ve taken. This step is important if you want to avoid having the same thing happen to you again.

If you were already using a trading journal to log every previous trade in detail, you can pat yourself on the back for making this step easier. If you weren’t, you’ll still need to do the best detective work you can to find the problem and come up with solutions. Maybe your trading plan is to blame, you risked too much money on each trade, or there were several different issues affecting your results. 

Practice on a Demo Account

You might not want to go back to demo trading – after all, it almost feels like a demotion. Still, you shouldn’t discount the benefits of trading on a demo account. In addition to being free, demo trading can help you work on fixing the issues that previously blew your account without having to risk any more money while doing so. If you’re hesitant to get back into real trading, this step can also help ease you back into it while increasing your confidence if you get good results. 

Open a New Trading Account

Sometimes, a fresh start is all you really need. After you accept your losses, get some practice, and work out what went wrong, you’ll be ready to deposit more money into your old account or maybe even open a new account with a new broker. Keep in mind that you could open a smaller account if you’re feeling apprehensive and you might even be able to find a better broker while doing so. Instead of feeling discouraged, think of it as a new beginning where you can get off to a better start. When trading on your new account, remember to keep a detailed log of your trades in a trading journal just in case you need to track your progress.

Categories
Forex Basics

How to Recover From a Blown Trading Account

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 […]

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 […]

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.

Review

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.

Categories
Forex Risk Management

Why You Should Only Risk 1% Per Trade

Some of the best advice that you can be given is to do with your risk management, risk management is often seen as the key to successful trading, it can make or break a trading strategy. One of the most well-known risk management plans is known as the 1% rule. It is quite simple in […]

Some of the best advice that you can be given is to do with your risk management, risk management is often seen as the key to successful trading, it can make or break a trading strategy. One of the most well-known risk management plans is known as the 1% rule. It is quite simple in […]

Some of the best advice that you can be given is to do with your risk management, risk management is often seen as the key to successful trading, it can make or break a trading strategy. One of the most well-known risk management plans is known as the 1% rule. It is quite simple in principle, you will simply risk just 1% of your account with each trade. So if you have a balance of $100, that 1% will be %1, if you have a balance of $1,000 then that 1% will be equal to $10. It could not be any simpler than that, of course, this 1% will be a different value for all traders as most will of course have different account balances, so it needs to be based on your own account and not simply copying someone else. We are going to be looking more into the 1% rule and giving a few ideas as to why so many traders follow it and even live by it.

So why is it the 1% rule? It is simple really, it is because your plan is to be able to trade today, tomorrow, the day after, and so on. Successful trading is all about being able to survive long enough to become profitable, if you are making large trades and taking large risks, then there is a good chance that this might not happen. The 1% rule simply reduces the amount of risk that you are using when you trade, which is paramount should you wish to be able to last as a trader and to survive a number of losses in a row.

The centre of any good trading strategy should be its risk management, I know we have said that multiple times already and we will continue to say it as it is paramount for your trading survival. You need to remember that the aim of forex is not to make a fortune overnight (although many come into it wanting this), the goal is to make a profit over an extended period of time. Trading is not a gamble and should not be treated like it, control your risks. When you make a number of different small trades, it has reduced the risks and the odds of you being successful will have gone up, simply because there are more opportunities to make a profit. Along with that, your account will last longer, and an account that lasts longer is able to make money for longer, it also gives you more opportunities to learn new things. Not to mention that if you lose a trade and it only losses 1% of the account, it will be far easier to make that 1% back than it will to make back the 30% another trader lost.

The 1% rule is a lot more relevant to those that are trading the shorter-term trading styles, things like day trading and scalping due to the fact that they place far more trades. You need to also bear in mind that each trade will have a slightly different amount of risks, yes it remains at 1% but you need to adjust for the previous results. A win would mean that you are trading a little extra, while a loss will mean that you are trading a little less. You should also consider broker fees, many brokers especially on accounts with low spreads will add a little commission on to each trade, if you can, try to take these figures out first, so you know what you will be left to trade with.

One thing to think about is the fact that not every trade needs to follow this rule, there may be times where the opportunity presents itself where it may be better to risk either more or less than the 1% that you usually do. It should also be noted that you should not be making more trades simply because you are risking less. We have seen people put on 3 or 4 identical trades, this is pointless and you may as well have just put on one large trade instead. One other way of implementing this rule is to simply put on a top-loss at 1% below the level that the markets were entered, if they lose the trade then they will have lost just 1%, this is called an equal risk method, as the take profit is normally set approximately 1% above the price that the market was entered.

We briefly mentioned it but you also need to be able to consider your returns or the profits that you are risking this 1% to get. Part of your analysis should be looking at the potential profits, if you have the chance to make a 0.8% gain, then you probably shouldn’t be risking 1% to get it, if you can make a potential 2% then the 1% risk could be worth it and justifiable. Your risk to reward ratio will be what you need it to be, but you should probably be aiming for something around the 1:2 ration, which is 1% risk for a 2% profit, anything less than that and it may not be worth it. Some people go even higher and won’t trade anything under 1:5, but really it is up to you and the style and strategy that you are using.

So you need to consider whether using the 1% rule is right for you because it certainly won’t be right for everyone. It takes a lot of willpower and determination to stick to it as you will be putting a lot of rules and limits on what you are able to do. Having said that, you do not need to follow it exactly every single time, you can have a few variations here and there should your analysis allow it. 1% can seem a little ringing and a little strict to many, if you are finding it hard to stick with the majority of the time then it may not be the right risk plan for you. If you are the sort of person that loves seeing big profit numbers then this may not be for you, there is enough room to make some decent money, but it will come in little bits rather than a big windfall.

Deciding whether the 1% rule is right for you is something that only you can decide. Even if you do not follow it, it is important that you take some of the principles away from it, things like a proper risk to reward ratio, that you are limiting your losses and that you maintain a certain level of discipline within your trading.

Categories
Beginners Forex Education Forex Basics

How to Cope with Forex Losses

Forex trading is inherently risky. It is known for churning out billionaires while others are left with less than they started with. Watching our hard-earned money disappear is difficult, and the aftermath can leave us in an emotional state where we don’t always make the best decisions. However, letting yourself fall victim to these emotions […]

Forex trading is inherently risky. It is known for churning out billionaires while others are left with less than they started with. Watching our hard-earned money disappear is difficult, and the aftermath can leave us in an emotional state where we don’t always make the best decisions. However, letting yourself fall victim to these emotions […]

Forex trading is inherently risky. It is known for churning out billionaires while others are left with less than they started with. Watching our hard-earned money disappear is difficult, and the aftermath can leave us in an emotional state where we don’t always make the best decisions. However, letting yourself fall victim to these emotions every time you lose will put you in a position where you are more likely to make mistakes. Traders must learn to deal with losses in a positive way to avoid falling victim to common trading problems based on a negative mindset. 

First, you need to know that even experts can’t be right 100% of the time. The best traders have a lighthearted, “oh well” attitude about losses and can find the humor in them. Yes, losing money is tough, but it isn’t the end of the world. Every winning streak has to end at some point. As long as you’re making more than you’re losing, then you’re on the right track and if you aren’t, then it only means you need to work on your strategy. 

When you lose money, you should start by analyzing what happened. Did you make a solid decision based on your trading strategy, only for the market to make an unexpected move? If so, know that this is an unavoidable part of trading. On the other hand, if you made a move that wasn’t thought out or based on nothing and lost, you should take responsibility for the mistake. Learn from your mistakes and move forward, rather than becoming fixated on what you lost. 

If you don’t learn to let go of your losses, then you’re bound to fall victim to other trading problems, like revenge trading. Many traders want revenge on the market for taking their money, so they begin to make highly leveraged trades that aren’t based on anything in order to frantically win their money back. Others fall into different patterns. For example, experiencing a large loss might leave you feeling anxious or afraid, which could cause you to avoid entering trades when you normally would or to pull out of trades before you hit your stop loss. 

Once you learn to cope with losses in a healthy way, you will find that trading doesn’t have to be so stressful and you’ll be able to improve your results. Here are some helpful tips related to losing money trading forex:

  • Analyze your losses: was it caused by a dumb mistake, or was it unavoidable? 
  • Learn from your losses and move on. There’s nothing you can do to change what happened, but you’ll know what not to do next time if the problem could have been avoided.
  • If you find yourself losing often, consider keeping a trading journal. This can help you to narrow down the problem.
  • Practice relaxation techniques if you’re becoming overwhelmed. If this doesn’t work, know when to take a break so that your emotions don’t interfere with your trades. 
  • If you’ve taken several losses in a row, this would be another good time to take a break so that you can come back to trading with a better outlook. 

Everyone hates losing money, but it is an unavoidable part of forex trading. Even the richest traders in the world have lost before, but they achieved greatness because they kept going and didn’t give up. The best thing you can do is learn to manage your emotions and learn from your mistakes so that small losses don’t turn into big problems for you down the road. Once you learn to cope with your losses in a healthy way, you’ll be a better forex trader. 

 

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Forex Risk Management

Big Trading Mistakes That Will Hurt Your Account Balance

Seasoned forex traders will tell you that there are several mistakes that can keep you from making money, or that could even cause you to lose your investment altogether. For the aspiring trader, the thought of losing hard-earned money on an investment that was meant to help secure their future is a daunting thought. Fortunately, […]

Seasoned forex traders will tell you that there are several mistakes that can keep you from making money, or that could even cause you to lose your investment altogether. For the aspiring trader, the thought of losing hard-earned money on an investment that was meant to help secure their future is a daunting thought. Fortunately, […]

Seasoned forex traders will tell you that there are several mistakes that can keep you from making money, or that could even cause you to lose your investment altogether. For the aspiring trader, the thought of losing hard-earned money on an investment that was meant to help secure their future is a daunting thought. Fortunately, many professional traders have learned about these costly mistakes the hard way – meaning that you don’t have to. Take a look at our list of big mistakes that will hurt your wallet below. 

Mistake #1: Trading Without an Education

If you have a sudden whim to open a trading account, you’ll find that it can be done fairly easy so long as you have a device with an internet connection, you’re 18 years or older, and you have at least $10 or so. This is actually the most common trading mistake that beginners make, as it is quite possible to rush into opening your trading account without any real knowledge. Those that make this mistake learn fairly quickly that without knowledge of what affects the market, risk-management, different strategies and plans, trading mechanics, and other subjects, success is impossible to come by. If you want to become a trader, avoid making this number #1 mistake and spend some time educating yourself first by taking advantage of free resources online. 

Mistake #2: Risking Too Much

With gambling, the idea of risk is fairly simple; the more you risk, the more you stand to gain. It’s easy to carry this mindset over to trading, but that doesn’t mean you should think this way. The truth is that risking too much (think 5% or more) on any one trade is a quick way to lose it all, especially if you don’t have much experience. Even if you feel as though you’re on a “winning streak”, experts recommend limiting the risk you take to 1% or 2% of your total account balance. Think $1 or $2 for every $100 in your trading account. Another pro tip is to actually base this percentage on the amount you’re willing to lose for each single trade, rather than basing it off your total account balance. 

Mistake #3: Being Emotional

Those that haven’t read about the psychology behind trading emotions are usually blind to how much of a role emotion can actually play on trading decisions. There’s really a lot to get into when it comes to the subject, but here are a few examples to paint a general idea:

  • Anxiety can lead traders to spend too much time thinking before entering a trade, causing the trader to enter the trade too late or not at all. 
  • Traders that have experienced a large loss or multiple losses in a row might become fearful of making any trading moves, even if they have information that supports the moves they want to make. 
  • A trader that has made a lot of money or who has experienced multiple wins in a row can become overconfident, which leads to overtrading or making decisions that are based on little fact because one feels they are on a “winning streak”. 
  • If one is trading out of revenge, they are likely to make decisions that are quick and not well-thought-out out of the urgency to make a profit. 

If you aren’t familiar with trading psychology, you should really dive deeper into the above subjects. If you’re already trading, you might want to think about the emotions that you feel while trading, as this can affect the way you make decisions and lead to a loss of money.

Mistake #4: Believing in Magic Answers

When we refer to magic answers, we’re actually talking about automated trading robots or signals that are advertised to be 100% successful. To be clear, a trading robot trades on your behalf, while a signal is a short message that gives you information about a trade you should enter. Don’t take this as a sign that there aren’t working signals and robots out there, however, you should know that 100% success rates cannot be guaranteed. Spend time researching the developers behind these products and reading user reviews before spending your money on them, and always keep an eye on those results. 

Mistake #5: Choosing the Wrong Broker

Choosing a broker is a task that deserves a lot of thought. After all, there’s a lot to think about. What types of fees are charged? What account types are available? Is the customer service up to par? If you choose the wrong broker, you’re going to face a plethora of problems down the road. You’ll likely pay insane fees that eat into your profits, spend a lot of time trying to get in touch with customer service if you have a problem, experience delays with your withdrawals, be stuck with a lackluster trading platform – should we go on? Any of these problems could be a nightmare, so be sure to put in the effort to ensure that you’re choosing the best broker possible.