The Principal Cause of Huge Draw Down in Online Forex Trading

FinanceTrading / Investing

  • Author Sunday Balogun
  • Published September 22, 2010
  • Word count 659

Everyone losses money in online forex trading. Like every other business and investment there is no immunity against unexpected losses. If you are afraid of losing then it is better you bury your money in your farm land. Forex trading is not for you. The goal of a trader should not be avoidance of losses but minimizing it.

If you are like many traders who are always trying to impress others with their trade history of no stops and losses, then get ready to have your entire account wiped out someday, that is if it has not happened.

What I want to draw your attention to is the chief cause of incessant draw down in trading. Until a trader knows this and confront it head on, success cannot be achieved in trading. The principal cause of losses is not the trading system used, not down server, under funding,re quote,etc but POOR MONEY MANAGEMENT. No matter your expertise in technical and fundamental analysis or trading system used, if a trader does not have a sound money management discipline, he will repeatedly have draw down. A trader must make conscious and deliberate effort not to trade above a certain percentage of his equity NO MATTER the opportunity seen. I know it is easier said than done. But this habit must be cultivated.When I started trading some years ago, I quickly master both technical and fundamental analysis, different trading methods, but this one thing-poor money management was my undoing. I make profit easily, only to loss it very quickly. After several accounts have been wiped out I decided to take some time off to really know what my problem was, oh I saw that this is not just about my trading but also about how I use money generally. If you are someone who gets money gifts often am sure you may not really value and use them well because you don’t work hard to get it. Consider Hollywood artistes and some athletes how they spend money.They believe more will come until they suffer major injury that ends their career, without anything to fall back on they become forgotten heroes. I began to value an old note like I would a new one. I began to see a dollar bill as $1000. I made it a duty to account to myself and wife how I use every money we receive and earn. Whoa, what a new feeling and attitude. After I have mastered this principle I got back to trading. The results have been amazing ever since.

I want you to take inventory of your attitude towards money. Everything that represents it and all it represents. Do you waste water, electricity, gas and the likes.Poor management of these could be transferred to your trading. Learn to be a good manager of resources. This is my advice on money management in trading your account.

Never use more than 2% of your account in one single trade. Let this determine your lot size and stops. Sometimes the market will provide you with clear opportunity to "multiply" you money but resist it. If you loose more than this percentage in a single trade you won’t take many more trades before your account is wiped out if you have a loosing streak which is not uncommon. Once you loose more than 4% in a day, don’t trade anymore for that day. Don’t try to recover all your losses the same day. Live to trade another day. A new day with a new opportunity.

Discipline yourself not to increase lot size until you have doubled your deposit and withdraw your initial deposit. Don’t gamble with your money. Make up your mind not to loose more than a certain percentage in a month. I don’t want to box you here. Think of something reasonable. If you loose this percentage don’t trade anymore for that month. Wait for another month.

Sunday Balogun is a professional trader and fund manager. With his wealth of experience in the forex market he is poised to help traders achieve success in trading. Get free forex education and top trading system review from his blog. www.forexmaga.com.

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