eToro – Forex Trading Forum

[djsheckie]

Let’s say you started an account with $1000 for your trading, and initially you decide to risk only $100 per trade. Your trading is going well and soon you have earned $1500, and you begin to think that since your trading is going so well you might as well increase your lot per trade and make more money faster.

So you decide to increase your amount to $200 per trade and sure enough you now have $2000 in your online fx account and decide that it’s worthwhile to up your trades to $500. However, after a promising start your $500 trade goes sour.

[djsheckie]

The trade drops so suddenly that you have no option other than to accept defeat and the trade ends at your stop loss limit. So now you’re down $500. You think perhaps you can recover and throw in another $500 but the exact same thing happens. Now you’re really frustrated and in a fit of determination make a series of increasingly risky and foolish trades to try to recover your loss and instead increase your losses.

As ridiculous as it might sounds this is an all too common scenario. What’s the reason why a trader is more successful when making smaller trades like $100 and less successful with large trades?

[djsheckie]

Well surprisingly the answer is not as complicated as one might think. It is simply because with small trades you are far less likely to get stressed out if the trend does suddenly turn against you. Also, when making smaller trades it’s easier keep your mind clear and focused and determine whether you should wait it out or to buy a reversal.

So the moral of the story? When trading forex always trade in amounts that you’re comfortable with and if things turn against you rather than waste money gambling on risky trades just cut your losses and walk away.

[Tropezienne]

This is an excellent piece of advice and one that all traders - new or moderately experienced should follow. Very experienced traders leaned this lesson a long time ago - they may have lost in the early days of their forex career, but having learned how their emotions affect their trading they have inevitably progressed.

Do not overstretch yourself - in the size of the trades, to your emotional limits, or in the amount fo time that you spend trading each day.

It is far better to keep on making small trades and to keep on gaining than to overstretch yourself and thus start losing. If you risk more of your trading capital you will find it harder to close down a losing position because you will be hoping that the position will retrace and turn into a winning trade. This rarely happens.

[xtrapips]

I agree with the two of you. I've been trading the currencies for more than 2 years and I have experienced the aforementioned story. I turned my $5 into $200+ in only 3 weeks but lost it all in only 1 day. Discipline is very crucial to traders success. Trade small and reap the rewards. This is not a get-rich-quick.

[djsheckie]

Thanks both of you. :) Tropezienne your absolutely right about waiting for losing trades to retrace - it's rarely a good idea. Alos, xtrapips thanks so much for sharing your experience. I also agree with you that FOREX isn't the way to get rich quick. Trading is a full time job and it requires a lot of hard work, knowledge, and unfortunately sometimes also requires a pretty steep learning curve.

Veteran traders have really had to earn their stripes so to speak and while there's a lot of money to be made in FOREX I think what's most critical for new traders to understand is that FOREX isn't guesswork, gambling, or something you can master in a week.

[gghaws]

Thanks for all the valuable information. I'm a novice and haven't did any trading yet. I'm trying to learn from the veterans before I get my feet wet.
Again
Thanks

Gloria