There may be a time when you start making a few trades, but you enter a downswing and you haven’t profited for a little while.
If this is the case for you, here are a few things to do when your money starts decreasing when trading to avoid losing.
Once you learn a few strategies, it is important that you seek to improve your understanding. Just because you think you know how they work doesn’t mean you can stop.
There are always going to be new things that will affect how a potential trade will go, such as geopolitical and economic factors that will sway currency prices daily.
Make sure you are researching systematic methods for screening and evaluating investments, determining the amount of risk that is or should be taken and formulating short- and long-term investment objectives.
Market conditions are always changing so if you have been using a certain method of your money is decreasing, go back to the theory and dissect the strategy even further.
It will be a matter of time before you become profitable again.
Use demo accounts
Nearly all trading platforms come with a demo account to practice putting your theories into strategies. Perhaps the most important benefit of a practice account is that it allows a trader to become adept at order-entry techniques.
This could be one of the mistakes that has crept into your trading. Few things are as damaging to a trading account as pushing the wrong button when opening or exiting a position. It is not uncommon, for example, for a new trader to accidentally add to a losing position instead of closing the trade.
Multiple errors in order entry can lead to large, unprotected losing trades. Aside from the devastating financial implications, this situation is incredibly stressful. Practice makes perfect: Experiment with order entries before placing real money on the line.
Using demo accounts will save you money during the downswing and give you the confidence that you know what you’re doing.
Sometimes you need to go back to the drawing board before you can progress.
Once you have relearnt your elite forex strategies and practiced on the demo accounts, you’ll be ready to make live trades.
However, to start with, use smaller unit sizes than you were previously.
Part of the reason why you may have been losing is because you have let emotions get in the way of a trade or you didn’t take slippage into account as much as you should be.
This is only theoretical of course but these sorts of factors cannot be replicated unless you are in the live trading environment.
Additionally, a trading plan that showed excellent results in the demo account may not perform as well in the live setting.
By reducing the unit sizes, you can control your bankroll until you’re profiting again and ready to increase, without going broke.
Keep Good Records
A trading journal is an effective way to learn from both losses and successes in forex trading.
Keeping a record of trading activity containing dates, instruments, profits, losses, and, perhaps most important, the trader’s own performance and emotions can be incredibly beneficial to growing as a successful trader.
Your journal will give personal feedback about your results and enables you to learn from your previous mistakes.
Without a journal, you are likely to repeat the same trades that continue to bring about the losses, sometimes without remembering what happened in the previous trade.
Increase the chance of being profitable my keeping records of your trades in a journal.
Protect Your Trading Account
While there is much focus on making money in forex trading, it is important to learn how to avoid losing money.
Proper money management techniques are an integral part of successful trading. Many veteran traders would agree that one can enter a position at any price and still make money – it’s how one gets out of the trade that matters.
Part of this is knowing when to accept your losses and move on. Always using a protective stop loss (a strategy designed to protect existing gains or thwart further losses by means of a stop-loss order or limit order) is an effective way to make sure that losses remain reasonable.
Traders can also consider using a maximum daily loss amount beyond which all positions would be closed, and no new trades initiated until the next trading session. While traders should have plans to limit losses, it is equally essential to protect profits.
Money management techniques, can help preserve winnings while still giving a trade room to grow.
Use Reasonable Leverage
The final tip to prevent further losses is to use reasonable leverage. Forex trading is unique in the amount of leverage that is afforded to its participants.
Properly used, leverage does provide potential for growth, however you could be losing money because you are using too much. While leverage is an attractive reason for forex trading, when trades don’t go to plan, it can be damaging to the bankroll.
Therefore, you should be looking to use less leverage combined with the smaller unit sizes we described earlier.
This will you will manage your winnings and losses in a much better way until you are ready to invest more money per trade.
Considering you are coming off the back of a downswing, minimizing risk is one of the most important factors to consider and using reasonable leverage is a great way to do that.
The worldwide forex market is attractive to many traders because of its low account requirements, round-the-clock trading and access to high amounts of leverage.
In summary, traders can avoid losing more money in forex by being willing to constantly learn and well prepared, taking time to research and investing with smaller units and leverage before returning to higher investments.
Tarik Pierce is the founder of InvestorTrip.com and regularly contributes articles to this website.
While living overseas, he uses PureVPN for a low cost VPN service.
He recommends Bluehost for setting up your own personal and/or business blog.
While his background is mostly related to trading stocks, he recently gained interest in real estate crowdfunding with Fundrise.