Imagine a small losing streak of just 5 trades risking 1% on each; it would cost you nearly 5% of your account. Think about that for a second, 5% of your account wiped out, by just a handful of bad trades. If you’re a trader, that should scare you.
For a trader who has been trading for years, small losing streaks are easy to deal with. However, for newbies, these losing streaks can have a detrimental impact on trading psychology.
New traders tend to let emotions get in the way of trading. If you are a newbie, your money management plan might say “I will risk 1% per trade”, but after a losing streak you may get angry and risk more to win back your losses. You would not be the first newbie to make that kind of mistake.
It is better to simply avoid painful losing streaks while learning Forex.
Lessen the impact of losing streaks
So, how can you kill off your losing streaks before they destroy your trading psychology?
It’s easy, if you lose three trades in a row, close down your platform, and take a few days off trading. This allows you to:
- Kill the losing streak before it gets bad. The longer a losing streak runs, the bigger the impact on your trading psychology. Killing your losing streak before it starts to mess with your head is always a good idea.
- Take a break and clear your head. Trading day in, day out, can get pretty stressful. This is especially true if you lose a few trades in a row. Taking a break will allow you to clear your head and calm down. Coming back to Forex calm and relaxed will help you break out of your losing streak.
- Preserve your capital, and prevent massive draw downs. As I said above, new traders usually let emotions get in the way. A losing streak, plus some emotional trading, usually leads to massive draw down. So, taking a break allows you to avoid destroying your account.
How This Rule Has Helped Me
These days, if I lose three trades in a row, I do not mind. I know that losing trades is part of trading Forex. However, when I was a newbie, I blew two accounts due to losing streaks. On my third account, I started using this rule, and I saved myself from a third margin call.
If I hadn’t followed this rule, I would not be a trader today. I would have margin called several accounts, and who knows where I would be?
This is something you should seriously consider adopting into your trading.
Are You Going To Use This Rule?
Are you going to use this rule in your trading? Leave a comment and discuss it, I would like to see what everybody thinks about this.