We have already talked about the most common mistakes of traders. But today I want to draw your attention to the leader of all those mistakes, to the #1 profit killer in your trading. It’s lack of money management.
Sounds easy, right? But if we look deeper, it becomes a serious problem that doesn’t let traders earn money, but leads to losing.
Is money management really your profit killer?
Anyone who works on Forex has heard (at least once in his career, no matter how long is it) that the market has its own rules. Anyway, the majority of newbies is sure that gambling on the market is the strategy that will surely lead them to profit. But in fact, relying on luck, ignoring the rules and the total lack of money management are trading killers that lead only to blowing your account. Dreams about millions of dollars will stay just dreams.
Money management isn’t a trading killer, but lack of it is.
Why do I call it #1 Forex Profit Killer ?
Probably, you have already known that there is a plenty of other reasons why traders lose on Forex and I’ve already written about many of them. But now it’s time to make a stop at the most important reason for making sure if you are ready for free swimming in the vast ocean of the foreign exchange.
Have you ever played a game? I mean any game, online or offline, it doesn’t really matter. Try to remember the rules of the game… Made it? Nice. And now imagine if people played it without any rules, and every person did whatever he liked. Some people would argue, some of them would walk away, as that game would be impossible to play without its rules.
Forex has rules as well. And the game loses its sense without following them. So, everyone who ignores money management rules will likely lose.
How to neutralize this trading killer?
Here are some tips for you on how to deal with it. Improve your money management, and you’ll never ever face the profit killer again!
1. Accept the fact that losing on Forex is inevitable and you will obligatory face losses.
So, you have to be ready for this and not to be nervous when you see ‘minuses’. There is nothing perfect in this world, and it’s impossible to have a ‘perfect’ winning rate even for professionals who have been working on Forex for 20 years or more. Everyone has drawdowns. Still, they are not your trading killers.
The secret is in not using much money than we can afford (financially and emotionally) to lose. Don’t use too big leverage as you can blow your account with just one trade. Keep it small, especially while you’re just starting.
2. Don’t overtrade and preserve your trading capital.
The fact is that many traders tend to trade too much, even if there are not enough confirmations for starting a deal. This phenomenon appears when a trader doesn’t have an exact trading plan. It’s a certain profit killer in trading too. If you surely know where you should enter the market, there is no need to open deals every hour without a reason. This is more similar to gambling. The Forex trading is a system. And you should follow its rules (remember what I’ve said earlier?).
3. Risk management is one of the most important things.
Thinking of reward is great, but here on Forex, you better think about risk more. Weighing potential risk is more helpful than forecasting your future win. Think about yourself as a risk manager first, and only then you can name yourself ‘a trader’. It will distinguish you from a gambler who tends to win a million with playing roulette. Lack of risk management is a great part of the profit killer – lack of money management.
4. Think about your position sizing.
The smaller account you have, the more risk you take. The more risk you take, the more stress you get. There are special position size calculators out there. For example, here is one on Earnforex, Myfxbook and Babypips.
They may help you to adjust the position size, a number of traded lots, etc. This will help you to optimize your risk/reward ratio and not to meet the trading killer while blowing your account with using the wrong number of lots.
5. Don’t try to catch every pip on the market.
Long story short, don’t be greedy. Don’t risk 1:2 per trade if you can risk less. In case you win with such a risk level, there is actually no reasons for worrying. But if you lose… I won’t be jealous 🙂
Better don’t risk too much, don’t be in a hurry. I understand that many novice traders rush to make money from small accounts, but usually, it doesn’t lead to profit. Just act along with your strategy and again… Follow the rules.
So, now you are well aware of what is your trading killer and know what to do when you meet it face-to-face. As you see now, there is nothing difficult in crushing the profit killer. You just have to follow the rules of your trading plan, work accurately, think of possible consequences.
Why is it so hard to cut losses and let profits grow?
Many traders have unrealistic expectations, especially at the beginning of their career. Even if one has nice money management rules and thought to details trading system, there’s no guarantee that he will stick to them. The problem is in peoples psychology and excess emotions that appear unconsciously. This can be an evil killer for your trading too.
I’m not stating that all emotions are bad and you should obligatory get rid of them. But trading is business that has to be based on pure logic, numbers, analysis.
Try to live with all your emotions and not to be seduced by greed. Don’t ever forget the money management rules I’ve talked about in this article, and you’ll have a chance to crush the profit killer!