Forex trading is about managing to keep losses to a bare minimum. Never take losses. Get out while you can. When the market plunges in the wrong direction, do not sit around and wait for things to get better. Get out! One of the best strategies for doing so is to set up automatic thresholds. If you losses reach a certain number, that’s it, you’re out.
When deciding what threshold number to choose, think about how much damage you can honestly withstand. If you set your number low in relation to your total investment capital, a nasty set of losses will not manage to kick you out of the game. No matter what system you use, if you set up these thresholds, you’ll never get too badly hammered. One of the dangerous things about Forex is that many investors lose everything. That’s right. Everything. Don’t allow this to happen to you. By sticking with the rule, I can’t promise that you’ll thrive, but I can promise you won’t take a dive.
Imagine an account with $1,000 in float. The trader starts with some $200 trades. He could easily sustain four losses right of the bat, which would knock him back $800. Should he go ahead and pump more money in to his account, assuming that having already lost four, his chances should improve for number five?
Absolutely not. Prior losses in no way improve your chances in the future. If he did bet more out of desperation or out of a faulty understanding of chance, He’d be out even more. If he had set a threshold in the beginning, he would never have found himself in those circumstances.
The problem was not that the trader was playing with too much money. It was that he had no management skills. He could have easily reduced his risk of loss. The name of the game is keeping losses to a absolute minimum. Playing with large sums of money is not only ok, it is what you have to do to take advantage of the numbers, but you cannot let your losses spiral out of control. Profits will come. Focus on avoiding heavy losses.
