I'm guessing that when you first thought about getting into forex trading, it was because you wanted to make a profit. Unfortunately, losses are also part of the landscape in this business. So what steps can you realistically take to minimize the losses and account drawdowns when your trades go south?
Because currency markets are inherently volatile, there are times when a paper profit can quickly turn into a real loss. That's just the nature of trading. Forex trading usually works in cycles, which means there are ups and there are downs. The big question you need to to answer is this - how much can I expect to lose if this trade goes against me?
Your answer to this question is critical to developing your trading system, and it looks at how much account drawdown you are going to be able to handle. Just to clarify, a drawdown is considered to be the total capital loss in your account from high to low after you've had a number of losing trades.
For example, let's say you have made trading profits for a prolonged period of time, but your winning streak comes to an end and you have started making losses. You will obviously be concerned about how many more losing trades you will have, and how much of a drawdown you are going to have based on past experience with your trading system.
This Is The Key To Minimizing Drawdowns In Your Forex Account...
This is why back testing your trading system using a demo trading account before ever considering trading a live account is so important. Just the fact that you've tested things in a demo account is a great way to make sure the system you are using is likely to work in most of the market conditions you are likely to encounter.
The purpose of testing is to prove the system you've chosen works, so you'll have confidence following the rules for entries and exits, even when you are scared witless by market volatility or uncertainty. You are never going to make profitable trades if you don't take them because of a lack of confidence in your trading system.
Forex trading truly is a high risk business, regardless of the trading strategy or methodology you use. Profitable traders know they are going to have losses and that they are unavoidable. The thing is you can manage those losses by making sure your trading plan works with back-testing before you risk your cash in the market.
Trading can be frustrating and extremely expensive, especially if you do nothing to stop the bleeding. That's why you need to trust your forex trading system and follow each trade signal you receive. When you do, you'll have a very good chance of having profitable career trading forex.
Because currency markets are inherently volatile, there are times when a paper profit can quickly turn into a real loss. That's just the nature of trading. Forex trading usually works in cycles, which means there are ups and there are downs. The big question you need to to answer is this - how much can I expect to lose if this trade goes against me?
Your answer to this question is critical to developing your trading system, and it looks at how much account drawdown you are going to be able to handle. Just to clarify, a drawdown is considered to be the total capital loss in your account from high to low after you've had a number of losing trades.
For example, let's say you have made trading profits for a prolonged period of time, but your winning streak comes to an end and you have started making losses. You will obviously be concerned about how many more losing trades you will have, and how much of a drawdown you are going to have based on past experience with your trading system.
This Is The Key To Minimizing Drawdowns In Your Forex Account...
This is why back testing your trading system using a demo trading account before ever considering trading a live account is so important. Just the fact that you've tested things in a demo account is a great way to make sure the system you are using is likely to work in most of the market conditions you are likely to encounter.
The purpose of testing is to prove the system you've chosen works, so you'll have confidence following the rules for entries and exits, even when you are scared witless by market volatility or uncertainty. You are never going to make profitable trades if you don't take them because of a lack of confidence in your trading system.
Forex trading truly is a high risk business, regardless of the trading strategy or methodology you use. Profitable traders know they are going to have losses and that they are unavoidable. The thing is you can manage those losses by making sure your trading plan works with back-testing before you risk your cash in the market.
Trading can be frustrating and extremely expensive, especially if you do nothing to stop the bleeding. That's why you need to trust your forex trading system and follow each trade signal you receive. When you do, you'll have a very good chance of having profitable career trading forex.
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