You probably started trading currency for the same reason I did: to make money. While that’s a worthy goal, and one that you’re likely to reach, it’s just not wise to try and make a year’s worth of profits in one trade.
Most of us, at one time or another, have risked 50% or more of our account on one or more trades. Most of us try that on our demo accounts, and then we start to feel invincible (look! See what I can do! I can double my money in just a week!). Of course, this led you to try something similar in your live account. That was a bad idea (but you already know that now).
Solution: Never risk more than 1% of your account on a single trade. Preferably less. Yes, you read that correctly. When you are just learning how to do this, you want to risk very little on each trade. The time will come for you to risk a greater percentage on each trade. That time is not now.
This is a money-management solution. If you don’t put a lot of money on the roulette table, you can have a lot of your money taken off the roulette table. I guess that’s a bad analogy, however. You should never play roulette, anyway. It’s a game meant to always take away from you, no matter how good you think you are.
You set a lame stop loss, or none at all.
Setting a stop loss is like zipping up your pants in the morning. It’s not required, but you can feel really embarrassed, really quickly, if you don’t do it. To tell you the truth, you could conceivably set a stop loss 100 pips wide just to get 10 pips. If you are not risking more than 1% of your account on the trade, it doesn’t much matter. I have done this before. I don’t do it any longer, because that is a dumb risk:reward ratio. The point here is that you must set some type of stop loss so that if the market really gets wild, that you don’t get crushed.
You traded on emotion, not reality.
You and I sometimes get a good string of trades put together, and then we start walking around like we’re the Warren Buffet of forex (we’re not). A good thing to remember at a time like that is this: you are not the Warren Buffet of trading – and the longer you keep up that attitude, you’re more likely to end up looking like the ENRON of forex. Bring yourself back down to earth before every trade. Make sure you take your time before every trade. Make sure that if you’re making what you believe to be a “sure bet,” then you better not risk more than 1% of your capital and set appropriate stop loss orders. Especially at the beginning of your trading career. You can start to risk more when you learn more. When you have a track record.
You just started trading with real money.
Your first trades with real money are the most amazing opportunities to lose money. You and I both did it – one week after I opened my first live account, I lost 90% of my account. I felt like crawling under a rock. Or smashing my head with one. It’s like magic: open a live account, lose money.
Realize that no matter how good you were on a demo account, you’re going to trade on emotion as soon as you open a live account. Mostly, you’re going to feel afraid to follow the same hair-brained strategy that you used when you were on the demo account. Here are five ideas that will help you avoid this:
1. Open your next live account with $2,000 or less. Trade for less than $1 per pip.
2. If you built a strategy / system while on a demo account, use it! It worked then, right?
3. If you didn’t build a system already, use that new small account to build one.
4. Don’t be afraid of losing money. Be afraid of making stupid trades.
5. NEVER, EVER, EVER, EVER trade when you’re emotional.
Something weird happened.
Well, it’s true: sometimes the market does things that it’s not supposed to do. Take Japanese intervention in the Yen – it’s not supposed to happen in a perfect world, but it does, and it can really throw off your perfect short trade. Or your forex dealer, like Refco, declares bankruptcy. These are the unpreventables, as I call them, and they don’t happen as often as we suspect. When you get burned by a totally unpredictable movement in the market, just sit back, relax, and ask yourself: did you only risk a small amount of your capital? Did you have a stop loss? If you had a stop loss and you only risked a small portion of your account, you will be just fine.
Read More : Why You Lost Money In Trading?
