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?
It doesn't take long to realize that trading currencies is an inherently volatile business. So many times you'll be looking at a nice paper profit, and then within a few minutes you are staring at a loss. That's trading - there are good days and there are not so good days. But the prudent trader always asks themselves what's the most they can expect to lose if any particular 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.
As an example, you may been having a great run of profitable trades for a couple of months but for some reason the series comes to an end. Before you know it you are now looking at quite a few losses. You're going to be concerned about the total drawdown you can expect based on what your trading system has produced in the past.
Here's The Key To Minimizing Drawdowns In Your Trading Account...
This is why you MUST back test your system carefully before ever considering using it on a live trading account. You should always trade using a demo account with the broker of your choice until you are sure the system you are using works in all kinds of markets.
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.
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.
It doesn't take long to realize that trading currencies is an inherently volatile business. So many times you'll be looking at a nice paper profit, and then within a few minutes you are staring at a loss. That's trading - there are good days and there are not so good days. But the prudent trader always asks themselves what's the most they can expect to lose if any particular 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.
As an example, you may been having a great run of profitable trades for a couple of months but for some reason the series comes to an end. Before you know it you are now looking at quite a few losses. You're going to be concerned about the total drawdown you can expect based on what your trading system has produced in the past.
Here's The Key To Minimizing Drawdowns In Your Trading Account...
This is why you MUST back test your system carefully before ever considering using it on a live trading account. You should always trade using a demo account with the broker of your choice until you are sure the system you are using works in all kinds of markets.
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.
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.
About the Author:
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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