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?
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?
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.
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.
You must prove the system works through risk-free testing so you'll have enough confidence to take the trades as they are signaled. You can't be a profitable trader if you freeze every time you get a trade signal because you don't have confidence in your trading system.
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 very rewarding and exciting, or it can be frustrating and extremely expensive. Some days you experience all of these things things within just a few hours. But if you can build a forex trading system you trust through back-testing, and you force yourself follow each trade signal you receive, you're well on your way to having profitable career trading the forex market.
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?
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.
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.
You must prove the system works through risk-free testing so you'll have enough confidence to take the trades as they are signaled. You can't be a profitable trader if you freeze every time you get a trade signal because you don't have confidence in your trading system.
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 very rewarding and exciting, or it can be frustrating and extremely expensive. Some days you experience all of these things things within just a few hours. But if you can build a forex trading system you trust through back-testing, and you force yourself follow each trade signal you receive, you're well on your way to having profitable career trading the forex market.
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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