How to not blow your forex trading account

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If you are wondering how many losing trades in a row can you take before you blow up your trading account or if you want to know how to not blow up your trading account, then after reading this article you’ll know the answers to these two questions.

Ever been in situation where your take 5, 7, or 10 trades in a row and they all go against you? No matter how careful and selective you are of your trades you just can’t stop losing?

Well, welcome to trading, you just experienced what we call a drawdown.

Whether you like it or not, you will experience drawdowns.There is no way around it.

When this happens to you, it will seem impossible to grow your trading account and if you are not careful, you can even blow your account.

Here is the fact: even if you had a trading strategy that is 80% profitable, you would still experience losing streak. You could still have 10 or more losing trades in a row.

If you have a trading strategy that is 80% profitable, this means out of 100 trades you take, you will win 80 trades and lose 20 trades, or 8 wins out of 10 trades

That is a very powerful strategy to have as trader, but the problem is that only a handful of traders have that kind of a system.

However, even if you happen to find such a strategy, you can and will still have losing streaks.

You could still lose the 1st 20 trades in a row and win the remaining 80 trades. This would still give you 80% win rate.

What if you lose the first 7 trades? Or the first 12 trades?

It’s possible. you will never know which of your trades will be your winning trades.

One of the important things you must understand about forex or investment for that matter is that nothing is certain.No trading strategy will guarantee you a 100 % win rate. It is possible to lose 10 or 15 or even 30 trades in a row.

Now, going back to our question…

How many losing trades can you take before you can lose your trading account?

To answer this question, consider this example:

2 traders: trader and trader Y

Both traders decide to open a $10,000 account each, they also take the same setups at the very same time, the only difference is that trades risk only 1% trade, while trader risk 5% per trade.

 

Meaning trader X only risk $200 per single trade and tader Y risk $500 per trade.

What if both of these traders experience 10 losing trades in a row?

Trader X would be left with $8,000 on his trading account by the end of the 10th trade.

While trader Y risk 5% per trade, he would be left with $5,000 meaning he lost half of his account.

Now, what if both traders continue to lose up to 20 trades in a row?

Trader X would be left with $6,000 on his account, while trade Y would lose his account by the end of the 20th trade.

This example simple shows you that it doesn’t matter if you have a $500 or $50,000 trading account, it doesn’t matter how big or small you account is, if you risk 2% per trader, you would need to lose 50,trades in a row before you can lose you account.

If you risk 5% per trade, then you would be gone by the end of the 20th trade.

If you risk 20% per trade, then you would only need to have 5 losing trades in a row before you can lose all your money.

Regardless of your trading account size, you can risk 2% of your account per trade you take, you can risk 5% or you can risk 15%. The choice is yours. However , you better realise that the more you risk,  the more volatile the results are going to be.

I have already answer the first question about how many losing trades in a row can you take before you blow up your trading account.

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how not to lose your trading account?

Well,the answer is pretty obvious, isn’t it?

Really, if you risk a small percentage of your account per trade, you won’t have a problem when you are faced with drawdowns.

The first and the very most important thing to do is to protect your trading account because really, without it, you cannot trade.

This topic brings us to risk reward retio

What is risk/reward ration

I don’t want to get deep into this topic because I have already published an article here about it but here is a short explanation:

Risk/reward is a ratio of how much you’re risking on a trade vs. how much you stand to gain.

For example, if you risk $10 and aim to make a profit of $50 then your risk reward ratio is 1/5.

Risk reward is important because it allows you to have many losing trades and still be able to grow your trading account.

I hope you understand how important it is to always risk small percentage of your account in each trade so that you can be able to survive losing streaks. Also if you have been trading for a while but straggling to grow your trading account I encourage you to join my private room here

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