You're still missing one of the most important rules when it comes to trading Forex
Let's say you have your proven strategy, correct mind set and strong money management rules.
Is that all it takes to be a successful trader?
For the first four years of trading, I believed it was.
Until one day, I woke up and realised I was down R70,000, in just three weeks.
I didn't understand what I was doing wrong.
Today, I want to show you how you can avoid making this mistake with an essential rule.
Let's get to it…
Let’s say you have R10,000 in your trading account.
You have a strategy showing you where to get in and how much money you need to put in, to only risk 2% of your portfolio.
So should the trade go against you, you’ll only lose R200 in your trade.
Next, over the course of one week you decide to trade 20 Forex trades.
You’ve gotten in exactly where you should. And you’ve placed your stop loss (risk levels) to the places where you’ll only risk 2% of your portfolio.
But then a stream of bad luck hits you.
Every one of your Forex trades, go in the complete opposite direction to where you expected them to go.
And so your trades start to hit their stop losses.
One after another, after another, after another.
Day end comes, and you find having all 20 of your trades hit your stop loss levels.
You followed the strategy and the risk management rules, and yet your portfolio still ended down 40% (R4,000) in just one week (2% X 20 trades).
How you can lose money when you follow the right trading rules and strategy
Here’s how to avoid losing 20 trades in a row
You need to know the maximum number of trades you can take at any time.
Because when the markets go awry, there is a domino effect which can cause you to lose every one of your trading positions. This makes your risk management rules almost useless.
I’m not sucking this lesson from my thumb.
You see, this happened to me in the year 2011.
I decided to go short (sell) over 20 trades.
And over the course of 2 weeks, I was down over 35% of my portfolio.
I was reckless.
“Some will be profitable and some will be losses”
My friend, they were all losses.
When it comes to trading, the trick is to limit the percentage of your portfolio if you hit a losing streak.
My limit is to never be down more than 6% of my portfolio per streak of trades.
And if I’m risking 2% per trade, this means to only have three open positions at a time.
You’ll be able to stomach the three losses, and then able to search for higher probability trades. Or take a break completely, until the market is in a better environment to trade.
But that’s not all.
The maximum loss percentage your portfolio should reflect be before you stop your trading is…
Trading like a business. Businesses have good and bad months. Sometimes they go through quarters with a loss of 21%. But they expect the business environment to improve and grow overtime.
This means, you can stomach through four batches of 6% (2% X 3 trades) losses over time, before you pause your portfolio from real live trading.
So, when will be the right time to start trading again?
This will take me a couple of calculations and real live examples, to explain how to get back into the profitable saddle again.
On Saturday at the end of October - early November, I am planning to discuss more of these profitable Forex strategies at the Advanced Forex Seminar in Johannesburg and Cape Town and Durban…
These will be the last Forex seminars for 2016. So if you’re interested then click here as I can only accept 15 of the most serious Forex traders.
“Wisdom yields Wealth”
Note: 5 of 1 vote