Forex Trading: Dealing With Losses
What's the most important rule of Forex trading? No, it's not to "make money." It's "Keep your losses as small as possible!"
If you minimize your Forex trading losses, you won't be "out of business" as soon as the market is unkind to you, and you'll still be armed and ready when the trend turns around.
So how do you limit your losses? The easiest way is to decide in advance on the maximum acceptable loss per trade.
You need to determine how much you are comfortable losing per trade, based on a percentage of your total Forex trading budget. Set it up so that a string of losses won’t stop you from trading for any length of time.
Do this, and you'll be smarter than 95% of the Forex traders out there who lose big time because they have no money management "rules" to go with their Forex trading efforts.
Here's an example of how a typical trader might act. If he had a Forex trading float of $1000, and began trading with $100 a trade, it would probably be acceptable for him to suffer three losses in a row. This would reduce his Forex trading budget to $400. He might then decide to bet $200 on the next trade, thinking he has a higher chance of winning after three loses in a row.
If he bets $100 on the next trade, his capital could be reduced to $250 dollars. The chances of making money now are practically nil because he would need to make 150% on the next trade just to break even!
If the maximum loss had been predetermined, and stuck to, he would not be in this position.
In this case, the reason for failure was because the trader risked too much money, and didn’t apply good money management to the play.
Remember, the goal is to keep your losses as small as possible while also making sure you open a large enough position to capitalize on profits and minimize losses.
With good money management rules in place, your Forex trading system will be much more successful and long lasting!
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