Learn Foreign Exchange Trading: How to Lose
Yes, you read that right: if you need to learn currency trading, you have got to be ready to lose. Of course you’ve got to go into each trade with the aim of earning money, but some trades will inevitably go against you. How you handle that when it occurs is one of the most important factors in figuring out whether you will become a successful currency exchange trader.
Everybody knows that it’s essential not to let your feelings be in command of your trading. However, even super cool traders, even those that use a system like FAP Turbo, who never make a stupid mistakes ( if there are any ) are certain to lose often because no system is one hundred pc successful. Some trades will just go wrong.
Also, and this is harder to handle, all systems will sometimes go thru bad patches where they drift into making a loss over several days or weeks. You can see this taking place when you backtest a system. There are times when everything appears to go right and times when it is the opposite. When it happens in real life, you have to be prepared.
A method to make preparations for a bad spell is to have an idea of the drawdown of your system. This is the amount by which your funds are probably going to drop in a bad run. It is dependent on the p.c. success rate of the system ( the proportion of lucrative trades ), the average profit of those trades and the average loss of losing trades. Generally if you have backtested the system completely you will have an idea of what the drawdown is likely to be. Real life can always surprise us so it is best to set your position size so that your total funds cover the drawdown three or 4 times over.
When you begin foreign exchange trading it is very easy to be drawn in to committing too much money to each trade. You may start out with a tiny account and use a lot of leverage to manipulate position sizes that involve you in more risk than your fund balance can handle. This will necessarily lead to a crash. So even if you only have the smallest possible micro account, work out your drawdown and make allowance for it. If you don’t, your funds will be wiped out sooner or later in the routine swings and roundabouts of your system and even if it was only a small amount, this is extraordinarily discouraging.
So on the one hand you need to protect your funds from bad times at any cost, but on the other hand you must be a little detached from them too. Do not consider that money yours any more, consider it spent, just as if you had used it to buy a new automobile. You should be trading with money that you are able to afford to lose, so if you can’t do this, you want to reconsider how your trading is sponsored.
It is important that you don’t depend on this money. Never trade with the rent money. If you do, you may be under a lot of pointless stress while you are trading and that is probably going to lead to mistakes. Ironically, the way to make more money when you learn foreign exchange trading is to plan for loss.
