If you are a long-term forex trader, you will be familiar with the “roller coaster ride” that comes with the territory. You will have experienced the highs and lows, the exhilarating profits and gut-wrenching losses, and you will have learned to cope with them all. However, since many traders do not understand properly managing their accounts, this wild ride can easily lead to financial ruin.
Truly great traders make money in forex. The rest lose it. It’s not uncommon for people to come into trading with a boatload of trading capital and then, after a series of profitable trades, discover that they’ve lost everything. This is the forex equivalent of waking up one day, looking in your wallet, and finding all the money is gone. It can happen, and it does happen.
When you start making some money in the forex market, you can become a bit giddy with the possibilities. And why not? You’re making money, and that’s great! But don’t get too excited because your newfound wealth has the potential to ruin everything. Successful trading is usually the result of hard work and discipline. Read on to learn more about how your forex profits can ruin you.
The big win
If you have made a big win trading the currency market and decide to quit, this could be the moment for the greed monster to eat you alive. If your trades have been going well and you decide to stop trading because you have made enough money, the chances that you will lose it all in one go are very high.
Why? Because naturally, human beings want more when they already have enough. Trading is fun, but winning is more rewarding than just making money. Once you reach a certain amount of profit, you will probably want to take some time off. This is why so many traders end up going broke after having a big win!
The big win is the most dangerous time for forex traders. It’s like winning the lottery – suddenly, you have money to burn and find yourself in a dangerous situation where you don’t need to trade anymore.
This is why it’s important to know how to manage your money; otherwise, your winning trades will end up being your biggest loss of all. Remember, trading for profit isn’t about making as much money as possible; it’s about riding the market and making consistent profits over a longer period.
Riskier trades
Whatever level of success you have in forex trading, you’ll likely start feeling like a king once you see an account balance after a few months of hard work. That’s when risky trading habits kick in, like putting on trades with a 2 percent risk and a 20 percent reward. Suddenly, you’re out of control and taking on high-risk trades that you shouldn’t be taking. It’s no wonder so many forex traders end up blowing their accounts if they don’t keep their feet firmly planted on the ground. You can’t take big risks and expect to make big profits all the time.
Greed
This is one of the biggest reasons people lose their profits so quickly. They start making a profit on a certain trade, and because it’s going their way, they want to keep pushing it and making more profit out when there isn’t room for it. This is very easy with currencies because the price can move quite quickly and take some big leaps up or down. The best thing you can do is take your profits when you should as planned and stick to your pre-determined risk management strategy.
Investing in “stuff “you don’t need
It’s easy to justify spending more money when it’s coming from profits. “Oh, I don’t normally buy these kinds of shoes,” you might say as you plunk down $200 for a pair of runners. “But I can afford them now, so why not?”
And while it’s true that some things are worth paying more for, many aren’t. When you start making money from your trading strategies, know how much extra cash is burning a hole in your pocket. If you don’t already have a list of things to buy before you start making money on the side, start one now—it will help keep your spending in check.
Trading forex for a living is not always easy, but it is real money. You have made money from it shouldn’t change your financial habits and spending sprees. Just because you have more money than before does not mean that you can afford fancier things or buy more expensive items.
Overtrading
You’re human, so it’s easy to get carried away when every trade you make ends up with a profit. You start to believe that you have some special gift for trading that makes you immune from risk. However, all traders are subject to risk if they overtrade or get greedy.
When it’s going well, the temptation to increase your position size can prove too hard to resist for many new traders. It’s important to know your personality and understand your tolerance levels for risk before deciding on whether or not you want to trade a full account or just a small percentage of your funds.
Too much, too soon
It’s one thing to make a healthy profit in foreign exchange trading, but if you trade too much or take too big of a risk, those profits are likely to come back and bite you. Stick to small trades that add up over time so they don’t result in a capital loss (or sanity). Never trade with money that could be used for another reason—like savings or retirement income. And never leverage any funds that aren’t part of your trading account.
Make wise decisions about how often you enter/exit positions, what positions you take on, and when you choose to close them out; little things like these will save you a lot of heartache down the road. Stay humble: Trading is always risky business—but it’s not something to get cocky about either.
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