Protecting Yourself from Forex Horror

If you have ever endured a losing streak when trading Forex, then you will know what a debilitating experience it can be. Did you feel extremely helpless and worried? I know I did as I watched all my money vanish before my very eyes. One of the big problems was that I did not know when to quit and accept reasonable losses. I just hung on hoping desperately that Forex would alter it direction and all would be well in the world again.

Yes, eventually it did reverse and proceed back in my originally chosen direction. Not that this development did much for me because my account was already dead and buried by then. At times like these, you will finally acknowledge the sheer relentless power of Forex trading. You do not want to get on the wrong side of this monster.

If you have been trading Forex for a while, then you must have come across many such horror stories mingled with some successful ones. So, how can you determine when it is time to quit under such circumstances? The following trading example may provide you with some answers.

Assume you have a Forex account balance of $50,000. Your research convinces you that the Euro is in freefall because some of the member states of the Eurozone have serious financial problems. As a result, you plunge in and sell the EUR/USD at 1.2400 using $20,000 of your balance. For simplicity, assume you are then risking $20 per pip.

Image that there is an initially plunge to 1.1900 producing you a profit of 500 pips. You have successfully made a profit of $10000 in the matter of days. Obviously, you would be ecstatic about this result. Unfortunately, Forex has the habit of making you select poor decisions just after your best successes.

This is because at these moments, everything starts to crumble. Instead of the currency pair falling further, the Euro starts to rally strongly. You may think that this is just a temporary correction before the bear trend resumes. You could get out and still preserve some of your profit, but you do not.

You could quite easily convince yourself that your fundamental analysis cannot be wrong so you should stick with your trade. However, you wake up the following morning and discover to your horror that the rate has now climbed to 1.2600. If you quit now, not only would you have lost all your winnings, but you would now experience a significant loss.

If you acted like me under these conditions, you will now feel sweat forming on your brow whilst your adrenaline goes into overload. What should you do? Hang in or quit? Why did you not take all those wonderful profits earlier?

Trades can always go wrong and you simply cannot subject yourself constantly to so much pressure. Instead, you should utilize less leverage, risked just 2% of your account and use better risk and money management strategies. You must never expose yourself to such horror. Yes...same apply to stock trading too....sighed!~!