Learn Forex Trading: Learn to Lose

Yes, you read that right: if you would like to learn foreign exchange trading, you’ve got to be able to lose. Naturally you have got to go into each trade with the intention of earning money, but some trades will necessarily go against you. How you handle that when it happens is one of the biggest factors in figuring out whether you will become a successful forex trader.  

Everyone knows that it’s essential not to let your emotions be in charge of your trading. However, even super cool traders, even those that employ a system such as FAP Turbo, who never make a stupid mistakes ( if there are any ) are sure to lose often because no system is one hundred pc successful. Some trades will just go wrong.

Also, and this is harder to handle, all systems will sometimes go thru bad patches where they drift into making a loss over a couple of days or weeks. You can see this taking place when you backtest a system. There are occasions when everything appears to go right and times when it is the opposite. When it occurs in real life, you need to be prepared.

One way to make preparations for a bad spell is to have an idea of the drawdown of your system. This is the amount by which your funds are probably going to drop in a bad run. It is dependent on the percentage success rate of the system ( the percentage of lucrative trades ), the average profit of those trades and the average loss of losing trades. Generally if you have backtested the system completely you may have an idea of what the drawdown is probably going to be. However, eeal life can always surprise us so it’s best to set your position size so that your total funds cover the drawdown three or four times over.

When you start foreign exchange trading it is very easy to be drawn in to committing too much money to each trade. You may start out with a minute account and use plenty of leverage to control position sizes that involve you in more risk than your fund balance can handle. This will inevitably lead to a crash. So even if you only have the tiniest possible micro account, figure out your drawdown and allow for it. If you do not, your funds will be wiped out at some point in the routine highs and lows of your system and even if it was only a bit, this is really daunting.

So on the one hand you need to protect your funds from bad times at all costs, but on the other hand you must be a little detached from them too. Don’t consider that money yours any more, consider it spent, just as if you had used it to get a new car. You should really only be trading with money that you are able to afford to lose, so if you can’t do this, you want to reconsider how your trading is financed.

It is important that you don’t depend on this cash. Never trade with the rent money. If you do, you’ll be under lots of unnecessary stress while you are trading and that is likely to lead to mistakes. Ironically, the way to make more money when you learn currency exchange trading is to plan for loss.