FX Trading 6 Hemorrhaging Points You Must Plug

Finding and executing successful trades is challenging enough but the process can become utterly frustrating when losses are being made from many angles. You need to be aware of the ways that the market and/or your broker can take your money. If you manage to reduce the hemorrhaging in these areas, while increasing your win/loss ratio, your trading success will sour.

Manually Closing Negative Trades

Whether all or part of a negative trade is closed, the act guarantees one thing, that is, that a loss will be realized. If you frequently close trades as soon as they go negative, this is an indication that you are not confident in the trading strategy being used. If this is the case, it is best that you do some back testing and review your trading strategy before you enter another trade. If your lack of confidence in the trading strategy is not justified, then you should resolve to rigidly following your trading plan by not entering or exiting before the signals are given.

However, if it’s clear that entering a particular trade was a mistake, then by all means take decisive steps to exit the trade.

Stop losses

As a general rule, no trade should be allowed to diminish a trader’s capital by more than 2%. This can be achieved by using money management and stop losses to limit the risk of significant loss.

It is not recommended that anyone should trade without a stop loss. To do so is to risk getting a margin call, or worse yet, bankruptcy. Arguably, it is worse to take small and frequent losses from closely set stop losses. It’s a frustrating thing to see prices go to the profit target after the trade was prematurely closed by a tight stop loss. You can avoid many of these by setting reasonable stop losses of 50pip or more and ensure that this is less than 2% of the trading capital at the time the trade was entered. Taking a loss is not pleasant but it is better to live to trade another day than to suffer a major draw down in trading capital and self-confidence.

If you decide not to use a stop loss, then you must be ultra conservative with the percentage of your available capital that you commit to any trade opportunity; you will have to do this to avoid margin calls.

Margin calls

Of all the ways to loose money trading, getting a margin call is the worst. That’s because most margin calls will wipe out 60% or more of a your account. The good news is, it can be easily avoided by:

• Eliminating or reducing the amount of leverage you use. A leverage of less than 3:1 is highly recommended.
• Never adding to a bad trade.
• Not letting Bad trades run.

Interest payments

Holding some trade positions, such as shorting a carry trade, guarantees that you will be charged interest; these interest payments can add up. A stock trader who uses a margin will also be required to pay interest for using the margin facility.

Through fees

While wire transfer, transaction fees and account management fees are usually small in comparison to a trading account’s balance, they can become significant if not properly managed. Investigate what fees you are currently being charges and research ways to reduce them.