How Not To Grow Your Forex Account by Ifeanyi Ukwe

It is a known fact that less than 10% of all forex traders actually make a profit in their routine trading activity. The other 90% are real losers. The gainers are able to break even because they have a trading plan that they stick to with discipline and consistency. They never "fight the market" nor move ahead of the market. Most importantly, they will never abandon the rules of their trading system come what may. The losers soon get kicked out of the market because they engage in certain practices that keep their FX accounts in perpetual deficit. These undue practices are examined in this article.

Not having a pre-determined trading strategy

In a bid to get into the market and start earning as soon as possible, many traders literally jump into the market without a trading plan. Your trading plan is roadmap to success. It will be a constant reminder of how you will make money in this market. So, without a trading plan and the discipline to stick to its rules, you will never be in profit. Your trading plan is your "holy book." Read it everyday and stick to it.

Abandoning a working trading system

It is surprising to learn that many traders who have been trading with a trading strategy with about 60% success arte soon abandon their system for an untested trading system. The rule in forex trading is that if you have a working trading strategy, do not abandon it. Stay with it and continue tweaking it to improve its efficiency, but do not abandon it

Not having a money management plan

Even among traders using high percentage winning strategies, a large number still lose trades because of poor money management. Well, forex trading is all about making money, and in order to make money, we have to know how to manage it. When you trade without money management rules, you are, in effect, gambling. You are not looking at the long term return on your investment. Instead, you are just looking for that "jackpot." Money management rules will not only protect you, but it will make you very profitable in the long run.

Not setting a stop-loss or take-profit

The FX market is full of uncertainties that crop up without warning. In a bid to rake in very large gains that may accrue in day and swing trading, many traders do not set a stop-loss nor a take-profit level that would trigger a closing of their position under given conditions. As a result, when losses occur, it is complete. In the case of not setting a take-profit, profitable trades soon get reversed to become lost trades.

You can allow winning trades to become losers by not setting a take-profit, but there is no a faster way of draining a forex account than not setting a stop-loss order. Employing both orders in your money management strategy will protect you from running out of trading capital.

Lowering a stop-loss order

This is a dangerous practice that can also drain your account of trading funds. A stop-loss is linked to your open position for the purpose of preventing additional losses if the price goes against you. Some traders resort to moving their stop-loss when the price has definitely moved against them in the hope that the price will reverse again in their favour. So, instead of exiting at the pre-determined stop-loss with lesser losses, they allow more room for the price, and eventually exit the trade with much larger losses.

The rule is to determine how much you want to lose for each trade based on your risk/reward ratio, set your stop-loss accordingly, and allow it to be hit if the price goes against you. Always keep it that way and never move your stop-loss position.

Moving ahead of the market

Some traders often presume that the market will move in a certain direction. The presumption may be as a result of three of the four indicators of their trading strategy having satisfied the pre-entry conditions. Without waiting for the fourth condition to be met, and presuming that "all things will be equal," they enter the market only to find out that that one rule that has been flouted will ruin their trade.

It is always good to allow the market to move and mark out a clear direction before placing a trade. This should form part of your entry and exit strategy.

Fighting the market

A trader gets into the habit of fighting the market when immediately after losing a trade, s/he wants to place another trade, in the hope of recovering their losses. This is a very bad idea. If you get very upset when you lose on a trade, and you seek a "revenge" on the market, the result is that you will tend to discard your trading system rules and become reckless which will leave you with more losses.

An occasional loss is part of the forex game. You should not feel too bad about it, but let it be a part of your total experience. When you lose on a trade, always go back to the chart that generated the trade (you should save every trade chart), and study the price patterns. Learn from your mistakes and resolve never to repeat it. Be sure to move away from the computer after losing a trade.

Conclusion

The key to success in forex trading is to spend time in developing a trading strategy, which should have entry and exit rules and sound money management principles that are designed to keep your trading funds healthy. With a good trading system, the next important factor is to stick to the rules of your system with discipline. Always remember that your most valuable asset is your trading capital. You should do everything you can to keep it healthy.