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Dealing With Losses

One of the most vital rules of FOREX trading is to keep your losses at a minimum. With small FOREX trading losses, you will be able to resist the times when the market moves against you, and will be well positioned for when the trend turns around again.

A good method to keep your losses at a minimum is to determine your maximum loss before you even open your FOREX trading position.

By maximum loss, we mean the greatest amount of capital that you are comfortable with losing for one trade. With your maximum loss put as a small percentage of your FOREX trading effort, even a string of losses will not stop you from trading for any given amount of time. Unlike the majority of FOREX traders who make money losses due to not implementing wise money management rules to their FOREX trading system, you will be doing alright.

For instance, let’s say you have a FOREX trading float of $2000, and you begin trading with $200 per trade, you should reasonably expect about three losses in a row. This would then decrease your FOREX trading capital down to $800. Then, it will be decided that you might want to bet $400 on the next trade because you think there’s a higher chance of winning after having lost three times in a row already.

If the trader does bet $200 dollars on the next trade because he thinks he might win, his capital could go right down to $500 dollars. So the chances of making money then will be practically zero because he would need to make 150% on the following trade just in order to break even. In this case, if the maximum loss had been determined beforehand, and kept to, there wouldn’t be any problem.

Here, the reason why the trade failed was due to the fact that the trader risked too much money, and didn’t apply good money management skills to his bet. Don’t forget, the goal here is to keep your losses to a minimum whilst also ensuring that we open a position large enough to capitalize on profits and keep losses to a minimum. With your money management rules in place within your FOREX trading system, you will always be completely able to do this.