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Risks and Losses of a Forex Trading SystemBY: Steven Matrix | Category: Education | Submitted: 2010-11-02 07:21:32
Article Summary: "Core psychological areas that you will need to be aware of to be a successful forex trader. Expectations are emotional and psychological, and trading psychology should be the most important focus for a new trader..."
Not a day goes by when I'm not asked to counsel a new forex trader on trade management and realistic expectations. Expectations are not projections or probabilities. Expectations are not a statistical or analytic animal. Expectations are emotional and psychological, and trading psychology should be the most important focus for a new trader. Trading psychology will determine your success or failure over the long term, period. In this article, I will cover some core psychological areas you will need to be aware of to be a successful forex trader.
Unquestionably, never risk over 5 per cent of your account balance on any one trade. It means that your extreme Stop Loss on any other trade shall not surpass 5 percent of your total account balance. For example, if you have a $1000 account, 5 per cent of $1000 is $50. This means that your maximum stop loss shall not exceed 50 pips ascertain you're trading one mini contract with a value of $1 per pip. I see new Forex traders every moment risking 20, 30, even 40% of their account on one trade. With that risk, and four losing trades in a row, you'll wipe out your account. You won't last long taking wild risks like that, and the psychological damage will be lasting. So minimize risk. Use 5 percent as a maximum risk threshold. Personally, I risk not exceeding 1-3 percent on any trade. If you have a larger account, you must follow the same rule, no exceptions. Though you are good trader, it's not unheard of to have 6 up to 8 losers in a row. No one likes it, still if you stick with a 1 to 3per cent risk limit, be convinced and also be psychologically do for it, it will roll off your back instead of breaking your spirit.
Many traders wish for Van Helsing's cross to raise when this hellish beast shows it soul-stealing teeth: Losing trades! A new trader will often feel ashamed after obtaining a losing trade. He feels that he has made a mistake and beats himself up over it. Penance does bad in this life, so confess your trading fault, resolve to sin no more, but do not plague yourself. Listen to the Truth: Losing trades are part of the game and are to be generally expected. Forgive yourself, and move on, but never give up. It's the trading journey that overall will be correct, not each individual step. So welcome each misstep. Like a stallkeeper paying rent to keep his store open, losses are part of the cost of doing business as a forex trader.
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