The Trade Almost Blew Up My Whole Account, And How to Avoid It Happening To You
I was so annoyed! It happened about 18 months ago.
I entered a ‘nailed on’ (well so I thought) short trade on the USD/JPY
I did my analysis, followed the strategy and was convinced the market was going to reverse.
Unfortunately the USD/JPY had other ideas and just continued going up.
However, still confident that I got this trade right, I committed a major trading cardinal sin- I moved my stop loss!!!
But not just once.
Three times in total
Ultimately resulting in an almost 90 % drawdown on my small sized trading account.
At first I was in shock.
Then I got really upset and angry.
Because it meant that my account had taken such a huge hit there was no way I was going to recover those losses unless I topped up my account back to where it was.
Of course losses are part and parcel of trading… but without sound money management you’re unlikely to be in this game for too long
As billionaire edge fund manager and legendary trader Paul Tudor Jones,
“Don’t focus on making money, focus on protecting what you have.”
In the days after I started looking into other people’s experiences of this, and how they best deal with it.
Here’s what I discovered…
How to Avoid Blowing Up Your Account
One of the most common pitfalls when it comes to trading particularly for an inexperienced trader is blowing up your account…
Some of the greatest traders in the world Jesse Livermore and Victor Niederhoffer have blown up accounts on more than a few occasions early in their careers
And despite many admitting it can be a very painful and embarrassing experience it’s also an integral part of the learning curve.
But there are some ways you can save yourself all the pain, embarrassment, anger and self-loathing from experiencing an account blow-out.
For instance…
Neal Roberts host and trader with TraderTVLive says that time and time again the biggest culprit for people blowing their accounts is through not taking the time to paper trade and develop a strategy.
Traders should only ever consider trading with a live account once they have a strategy that’s successful and will make money for you.
And there are others who have ideas too…
Like…
Sean Sechler, a former stockbroker and contributing author from MarketBeat feels that lots of people go into trading with a ‘get rich quick’ mindset. Approaching it with this type of psychology will very often mean crippling losses in your account.
He adds, the key to trading success is developing a consistent routine and strategy that suits and works for you. Trading is a marathon, not a sprint. You must show patience to achieve consistent and profitable results.
Mike Bellafiore, a trading educator and Co-Founder of SMB Capital and SMBU says it’s essential you have a trading plan before every trade. Markets are fast moving and without a detailed trading plan before each trade the market will have an unwelcome plan for you.
Rayner Teo, an independent trader, and the founder of TradingwithRayner adds we must always have a pre-defined exit from your trade so once the price hits that point we’re out of the trade.
No If’s, No Buts. No Maybes.
Once you have your stop loss in place i.e. you have a plan for an exit, your damage is contained and the market can’t take anymore money from you.
Once you have your stop loss in place i.e. you have a plan for an exit, your damage is contained and the market can’t take anymore money from you.
Whether you’ve been in the trading game for some time or you’re just starting out, all this is great advice we should all heed as traders.
It helped me and hopefully it will do the same for you.
