How To Avoid Losing Money When Trading Forex
Ever heard the phrase ‘speed in, speed out’?
Yeah I know it’s mostly used in robberies, but it can also be used to describe the time frame of most traders.
About 74% of traders end up blowing their account within the first 3weeks of opening an account and trading.
The Forex market is the largest financial market in the world and the most liquid of all the markets.
This draws most traders into rushing head-first into it in an attempt to make a lot of money from it.
Its other advantageous features such as the fact that you can open an account and start trading with small costs, it has high leverage, and that it is available 24/7 except on weekends do not help matters.
For this reason, the majority of the traders who rush in, end up rushing out as they blow up their accounts within days or weeks. Sometimes even more than one account.
However, here are 5 things that can stop you from blazing in and out of Forex trading by helping you not to blow your account.
1) EDUCATE YOURSELF AND DO DUE DILIGENCE:
Even with the wide resources available online about Forex trading, most traders just jump head-first without doing their due diligence.
How well a trader knows Forex affects their profitability, and while it’s understandable that most knowledge comes from trading that doesn’t mean that you should skip the learning part and jump straight into the doing.
Educating yourself involves creating a trading plan. This should include your entry, exit and risk management strategies.
This would help you to become very disciplined and help you formulate long-term and short-term goals.
Doing due diligence also includes doing the research necessary to pick a reputable broker to trade with.
There is less regulation in the Forex niche, and this makes it possible for shady brokers to also offer their services.
It’s your job to do your research and avoid brokers like that when picking a broker. Also research other details such as withdrawal policies, account funding, leverage, spread, customer care etc.
Anything and everything that would aid you in increasing your profit potential.
2) START WITH A DEMO ACCOUNT, AND START SMALL WHEN GOING LIVE:
When starting, you are probably going to make mistakes, a lot of them even, usually in entry and exit of trades, also in trying to set stop losses, take profit and other technicalities.
In a live account, those mistakes would cost you money but fortunately, most brokers provide practice/demo accounts where you can sharpen and hone your trading skills and build experience.
It is also important that when you are finally ready to trade with real money, no matter the amount of capital you have available, you start small.
A live account is different from a demo account.
No matter how long you have trained or practised, you have to start small because this time your decisions would cost or make you money. As they say, the gloves are off.
3) ALWAYS PROTECT YOUR TRADING ACCOUNT:
Risk management is one of the most important aspects of Forex trading. Expert traders will tell you that the position you enter a market doesn’t matter as much as the position you leave.
That means going out of a market at the peak of its bullish run or cutting your losses before they become high when the market goes otherwise.
Stop loss, trailing stops and take profit orders aren’t just there to beautify your trading account. They are there to be used.
Stop loss refers to the order you set in place in case your analysis was wrong and the market goes otherwise.
When the market falls to that level, it automatically clocks you out of the trade.
Trailing stops are stops that trail the market, so that if its bullish run ever reversed you were quickly cashed out before losing much of the money you had gained.
The higher the market goes, it automatically resets itself at the same interval as a set.
Take profit are orders placed at interval points that are believed the market would reach.
As soon as the market reaches that level, a certain amount of the trade is taken out, and that is how it continually gets taken out until there is nothing in the trade anymore.
A trader can also set a daily loss limit that prevents any other trade for that day when the loss limit has been reached.
4) DON’T MISUSE THE LEVERAGE:
The Forex market offers one of the highest leverages in any trading market. Leverages allow you to open a way higher position in a trade than the amount of money in your account.
This is one of the reasons why most people run into Forex trading, it’s also one of the reasons why many blow their accounts.
While the profit potential is going to be very high if the market goes well, it can also have huge effects if the market goes otherwise.
Leverage can be very tricky.
5) TREAT FOREX TRADING AS A BUSINESS AND KEEP A RECORD:
It is very crucial if you don’t want to lose money in Forex trading to consider your trading as a business, and while there may be little losses or wins, it’s the bottom line of the company that matters.
Every other thing, as they say, is just another day at the office.
No business can survive without good bookkeeping.
You must keep a trading journal, recording strategies used, and the results of those strategies on both good days and worse days.
This would help you learn from past experiences, making sure you never repeat past mistakes.
