For the majority of people who are tempted to try forex trading, the main motivation is to make a profit. But pretty quickly, they realize that dealing with losses are also part of this business. So what kinds of precautions can traders take to minimize account drawdowns when your trades go against you?
Since trading currencies is an inherently volatile business, there are times when a paper profit you were hoping to bank can quickly turn into a loss. That's just what happens in trading - there are ups and there are downs. The big question is this - what's the most I can expect to lose if this trade goes bad?
The answer you give forms a core part of your trading system, and it focuses on how much of a drawdown you are going to be able to live with. Just so we're clear, a drawdown is the total of the capital loss in your account after you've had a series 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.
Here's The Key To Minimizing Drawdowns In Your Trading Account...
This is why it's so important to back test your system before using it on a live account. In other words, always use a demo account until you have seen how the forex system you are using performs in various kinds of market conditions.
Using this risk-free testing environment is going to let you have enough confidence in your system to enter and exit trades without hesitating. You are never going to become a profitable trader if you panic every time a trade signal is generated because you don't have confidence that your trading system is going to work.
Trading the forex market involves risk, and that risk is always present regardless of what trading strategy you end up using. And of course, risk leads to losses. Professional traders assume that losses will happen and are unavoidable, but they can be managed by proving your trading with back-testing before you risk money 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.
Since trading currencies is an inherently volatile business, there are times when a paper profit you were hoping to bank can quickly turn into a loss. That's just what happens in trading - there are ups and there are downs. The big question is this - what's the most I can expect to lose if this trade goes bad?
The answer you give forms a core part of your trading system, and it focuses on how much of a drawdown you are going to be able to live with. Just so we're clear, a drawdown is the total of the capital loss in your account after you've had a series 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.
Here's The Key To Minimizing Drawdowns In Your Trading Account...
This is why it's so important to back test your system before using it on a live account. In other words, always use a demo account until you have seen how the forex system you are using performs in various kinds of market conditions.
Using this risk-free testing environment is going to let you have enough confidence in your system to enter and exit trades without hesitating. You are never going to become a profitable trader if you panic every time a trade signal is generated because you don't have confidence that your trading system is going to work.
Trading the forex market involves risk, and that risk is always present regardless of what trading strategy you end up using. And of course, risk leads to losses. Professional traders assume that losses will happen and are unavoidable, but they can be managed by proving your trading with back-testing before you risk money 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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You can learn forex trading even more here, where we shed some light on the latest proven methods for succeeding in the market. Oh, and stop by the site and read this article about handling forex losses and come out the other side smiling.
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