Let's face it, the whole idea of getting into forex trading is because you want to make a profit. But since losses are an inevitable part of this business, what can you realistically do to deal with them when they happen on some of your trades?
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.
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've been having a good run of profits but your winning streak comes to an end. Over a couple of weeks you are now looking at several losses. You're concerned about how many losses you will have before the profits start again, and what kind of drawdown you can expect based on what's happened in the past with your trading system.
This Is The Key To Minimizing Drawdowns In Your Forex 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.
The purpose of testing is to prove the system you've chosen works, so you'll have confidence following the rules for entries and exits, even when you are scared witless by market volatility or uncertainty. You are never going to make profitable trades if you don't take them because of a lack of confidence in your trading system.
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 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.
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.
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've been having a good run of profits but your winning streak comes to an end. Over a couple of weeks you are now looking at several losses. You're concerned about how many losses you will have before the profits start again, and what kind of drawdown you can expect based on what's happened in the past with your trading system.
This Is The Key To Minimizing Drawdowns In Your Forex 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.
The purpose of testing is to prove the system you've chosen works, so you'll have confidence following the rules for entries and exits, even when you are scared witless by market volatility or uncertainty. You are never going to make profitable trades if you don't take them because of a lack of confidence in your trading system.
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 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.
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