So, why do I keep blowing my trading account?
This is mainly because of your risk/ money management and trading psychology.
I have been there and I have done that too. So I have learnt a lot while blowing my trading account.
Types of trading
This is especially true in forex, crypto and intraday trading of any kind. Because the more you trade the more your psychology is screwed. And in turn, you make more losses.
Account size
This is true when you have a small account. If you want to make $10 to $100 on a consistent basis, then you are definitely going to blow your account fast.
Small account trading is the first reason why you are blowing up your account. As few losses in a row could reduce your capital.
Drawdown
So drawdown is very important when you want to not blow up your account. So whenever you create a strategy make sure your strategy has the least possible drawdown as possible, so that you will not blow up your account even if you have few losses in a row.
Trading Psychology
The next most important reason is psychology. If you don’t have rules and if you don’t control your emotions and your trades you will always lose your entire capital. this happens because when your emotions are at its peak, you can’t think properly. Emotions like greed, fear and anxiety will make your logical brain less active so you cannot think properly. If you can’t think properly, you will take a wrong entry and keep moving your stop loss and you will not follow your strategy rules. This will result in losses.
When you lose the trade always consider the next trade as a new one. When you lose the capital consider next capital as a new one. Don’t consider the new capital or trade as a way to recover your losses. That is never going to happen if you want to be profitable in the long run.
Strategy & Money management
Just because we say trading psychology is important, it doesn’t mean that you can use any random strategy. If your strategy rate is low, that is below 50% and you risk reward ratio is also like 2 : 1 risk reward ratio, you are again going to lose your capital. Strategy win rate is always important along with your risk reward ratio. So backtest your strategy and paper trade for few days before practicing it in the live market.
Practical tips
- Any strategy that you really understand and has a win rate of above 50% and risk reward ratio of 1:1.4 and above, should be followed.
- Also have a money management rule which will help you in the long run. It can be like 1% risk per trade or 1 trade per day. This may sound simple, but this is the single most important thing you might want to follow even if you don’t want to follow other things mentioned in this post.
- Next follow these rules with discipline. Discipline and consistency is the key to success in trading and protecting your capital.
- Even if you make a mistake one time with huge loss, it will destroy all your small gains. So always aim small losses and many more huge gains.
- Don’t be careless and always place a stop loss, even if you want more space for the stock to move, place the stop loss a bit for away from your entry point, but do not skip placing a stop loss.
- You can note down the number of losing trades in a row while backtesting. It should be around 3 or 4 so that even if you have a small account you can manage to capital for the next trade.
- And to avoid all your emotions while trading practice mindfulness meditation and try keeping a trading journal to note down your trades. Try thought controlling meditation before you enter a trade and use a trading journal immediately after trading. In this way you will know where your trades go wrong, when your emotions are triggered and how you can handle it.
There are so many other factors affecting your losses, but these are the basics which when followed, will definitely protect your capital in the long run.
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