Trading account wiped out in 3 days

Beginner Questions
1

It is almost embarassing to admit, but that’s what happened to me. I have done my fair bit of reading, a lot of reading about Forex trading and then set out to trade.
I started of with 4000 USD which is probably my first mistake. Interestingly enough I put my stop loss at 250 dollars, and arranged the trades as such. The first trade was a bumper hit ( beginner’s luck I suppose) and made a cool grand buying just one contract. Then, instead of celebrating my victory with a drink or soemthing, I decided to rake in more money, by reversing my bet( since the long went some distance, thought that there would be a reversal). I still had stop losses in place and thought would be safe even if I lose 250. And I did lose 250, and then I thought since it is falling it will continue to fall and bet on another trade again going short on AUDUSD. Then I was taken out on a 20pip upswing taking another 250. So this went on and at some point I realised that I am like child in a street fight just going on without stopping. Long story short, I am left with 90 bucks in the account and it is too small to do even a mini contract.

My problem is, I am being taken out on 20 pip moves even if my general bet was correct. As in if I think AUDUSD is going to go up, it is going up but only after some fluctualtions. and these fluctuations are killing me.
Now, I decided to back off and revisit my books and read them again. I was hoping that someone here would school me in how to get this right. I know the prime rule is to protect your capital and I failed it badly. But how do i learn from it and succeed in the future. Please help me out, it will be greatly appreciated.

Thanks in advance.
:mad::(:mad:

2

i am no pro but where u trading a full 100k lot with only $4000 US to me that sounds like to much leverage also i do not think a 20 pip stop is not the widest stop either

3

Over leverage is what killed you. You should be trading mini lots instead of standard lots on a $4k account.

4

Hello,

Before I begin let me say THIS to you:

DO NOT feel bad about what has happened!!! In my first year I ‘wiped out’ about ten times that amount (I didn’t back then and STILL do not believe in ‘demo trading’)!!! If you don’t let this ‘get to you’ and you are persistent then you can, and will, succeed (eventually)!!!

One other thing:

What has happened to you has nothing at all to do with leverage. It has EVERYTHING to do with money management (or, as you put it, the ‘protection of capital’). The concept of leverage is grossly misunderstood (and I know because it took me an ABSOLUTE AGE to actually grasp the concept)!!!

All leverage means is HOW MUCH of your capital you have to use (margin) to open a position. It DOES NOT affect the value per pip or point movement of an instrument (forex pair). The reason why HIGHLY leveraged accounts are dangerous is simply because it allows people to use LESS of their margin to open positions so the tendency (of course) is to open TOO MANY positions because they have LOADS of capital left (or at least that’s what they PERCEIVE is the case).

Here is an example of what I mean:

One of my accounts is leveraged 400:1. At this particular broker I can buy or sell a pair and my margin cost is only $25 BUT for that SAME $25 the USD value per pip movement is $1. Now if you do not know about money mangement you will, of course, think to yourself: ‘Well: I have $4 000 capital and I’m only using $25 of that capital on a single position so WHY NOT open another 20 positions. I’ll STILL have $3 475 left in my account so what’s the problem’??? Well: the problem is that NOW you have 21 positions open and a single pip movement on EACH of those positions is equal to $1. In other words: NOW you’re looking at $21 per pip movement and not just $1 per pip movement!!! Now EUR/USD (for example) can move 100 pips in a day. That’s a $2 100 loss if those positions go against you!!!

Now if the leverage on that same account was 50:1 THEN it’d be costing $100 in capital (margin) to open a position. Using the above example it’d then cost you $2 100 to open the equivalent number of positions. NOW you’d think twice wouldn’t you??? That’s MORE than 50% of your account. See how it works???

Now that we’ve got that ‘out of the way’:

Some of the words you used concern me i.e. ‘bet’, ‘hoping’, ‘thought’ are a few of these. That tells me that you don’t REALLY have a ‘system’ in place. I’m sure that the books that you’re reading are worthwhile but you do need a ‘system’. What’s more: the word ‘system’ does NOT just refer to a ‘trading’ ‘system’. What I mean by ‘system’ encompasses a whole ‘bunch’ of things INCLUDING but not limited to ‘how and what to trade’, money management rules, when to take profit, when to take a loss, etc. All of these things make up a ‘system’.

Now if you go through the ‘Free Forex Trading Systems’ forum you’re bound to find something that will work for you. Having said that though: this business is 1% ‘trading’ ‘system’ and 99% ‘trading pscyhology’. One without the other is useless.

5

250/4000 = 6% risk per trade… quite a lot, but not neccessarily unreasonable. I’d suggest more like 1 or 2% at first, though, seeing as you’re not consistently profitable yet (or profitable at all).

If you want to risk 250 dollars then you need that spread out over way more than 20 pips. A 20pip stop loss is very small on many pairs. What time frames were you using, and how long did your trades last?
If you buy one standard lot then $200 will be 20pips, which as we’ve said is far too short a distance. But if you trade mini lots, you could have something like a 50pip stop loss for just $50. Much better.

And if you think mini lots are “too slow” to get you to be a millionaire, then first of all, look how fast you progressed when using standard lots… and then consider that in a $2000 account, 100pips/week with mini lots, with a 40pip ($40 or 2%) stop loss, you’d double the account in 5 months. Is that really so bad? I know I’d be pretty happy with that! The same holds true for larger accounts, too - it scales up accordingly.
4-8-16-32-64… $62,000 profit in just over two years.
These numbers are for illustration purposes only, of course, but it hopefully shows you that risking “only” 2% of your account, trading “only” mini lots (at this stage), and making just 100 pips/week, could see a trader be very successful.

6

Been there, done that Killerraj! Your not alone! My mistake was similar, chasing the market! Made a profit the the greed kicked in, made a loss, then more losses and didnt want to accept it, chased the market until I was making every error I had learnt not to do but my learning went out of the window because I thought I knew best! Yeah right! Market slapped my face and said go back to learning son! So I did.
Re-read the pips school, you’ll soon see where you went wrong as I did. My error was ignoring my profit targets and chasing ever more. Sitting out to confirm my technical indicators and then setting limit orders to bring me in if touched. This now works better for me. Have a clear entry point if my indicators are confirmed ( dont get it right all the time but thats all a part of learning) and have a non greedy, realistic 1st target will a stop loss far enough away to allow for the corrections, which always happen. My thing is not taking too large a position initially so I can afford to have my stops far enough away without too big a risk. If i,m touched out, so be it, and this happens, however if my limit order brings me in then i trail my stop up accordingly to lock in. If things look good I may add to the position but in a small way, if my 1st target gets hit, I take my pips! Show me the money!
I use support/resistance, 20/40/200 SMA , stochastics and RSI primarily, watching out for OS/OB conditions, crossovers, divergence. Diff indicators work diff in diff conditions but supp/resistance/trendlines for me is important.

7

I read something very interesting when I was researching topics on emotional trading. At the time I really didn’t see much use for it but I thought I would give it a shot in my demo and see if it can be done. A man that teaches forex told his students about goal setting which of course we all have heard. He told his students to make $100 dollar a day for 20 days consecutively. Not make and then lose but make it and hold onto it. Only trading mini lots. Then after 20 days when they came back and had successfully done so he moved the target to $250 a day again only trading mini lots. each student started with $1000 and each student met the requirement. At the end of two months every student had 8,000. This was enough to start trading standard lots on a small scale if they chose too. Most chose to stick with the mini lots. Maybe a system such as this would work for you. Work it into your trading so that you make your limit and you quit for the day. Once you have mastered that then move your goal up. I think most of us get caught up in the big wins and wish to keep going. If its a situation where you just “need” to trade, trade your live account for your goal everyday and then switch to your demo for the huge risk trades. That way you can have the best of both worlds. Happy trading and good luck to you, Raven

8

First mistake: Thinking that because you are out of the move, somehow that means the market wants to go the other way.

The market doesn’t care about you. You got short for no other reason other than you got out of the market. Thats not a smart assumption or conclusion.

What are you using to make your trade decisions? It doesn’t sound too concrete - maybe some trade rules would help. Have you demo’ed successfully for at LEAST 2 months?

9

[B]killerraj[/B], read “The Disciplined Trader” by Mark Douglas. Just “knowing” (technical analysis, and it’s an educated guess and not a certainty) what the market will do next is not everything in trading, in fact, if he doesn’t have the emotional stability required, he will INVARIABLY fail, sooner or later.

God did it take you that long? You didn’t study much before starting to trade did you :o

Maybe it has something to do with the person’s ease with numbers (and ease with doing large calculations in one’s head, which i can do yet i don’t want to boast about it ;)), to me it (and this concept of leverage) always came easy. I thought everyone would grasp it easily too. Apparently killeraj didn’t.

10

Yep, I’m afraid it did (take that long).

Let me put it THIS way:

The REASON it took so long is because for a very long while I chose to ignore every bit of good advice regarding money mangement so leverage meant nothing to me and it cost me dearly over time. Only when I realised that money mangement is not an ‘optional extra’ but a ‘must have’ did things turn around for me. What I’m saying is that I knew and understood what leverage ‘meant’ but how it related to my margin and trading account took me a while to figure. In the beginning I always assumed that the HIGHER the leverage, the more money per pip movement you’d be making and, as I’m sure you know, this is NOT the case (but believe me there are still people that think that is what leverage means)!!!

11

Welcome to the club, I did something very similar when I started out, only I did it better than you - I got down to $75, so try harder! :wink:

What I do now is trade in much smaller lot sizes (.1 typically) and my goal is to make $53 a day. If I lose more than $100, I call it quits for the day and go out of the house. I also have a much smaller account - I started with $500.

You also have to have a strategy. What are you using to decide when to open a trade? What are you doing to decide to close the trade. It might help you to write down the criteria you use in such a way that you could explain it to someone else. Then when the market matches your criteria, you can place a trade AND you can repeat this success … or note the failure and modify your strategy.

Finally, for me, I have a long term plan. I measure my goals in terms of months and years. If for the next 3 months I make my goal 4 out of 5 days a week, then I will move to .2 lots (really it’s a balance that I look for.) Only if I hit certain milestones will I up my risk and exposure.

Finally, to me, money management means one thing: KEEPING MY MONEY. You have to protect your hard earned cash. Take your time. Study everything like crazy. When you dream about Forex, wake up early to go do Forex, and can’t stop talking about Forex … you’re probably about 10% of the way there. :smiley:

12

Thanks for your responses guys. I really appreciate it. It comforts me to know that there are people out there that made the same mistakes as I did and still in the business. Losing money is not really that bad for me, as I do relatively well in my day job. Its the “losing” part that made me sad. I don’t like losing, period.

Some of you have suggested that it is the leveraging that killed me and I am poor at money management. I am telling you again, I followed every rule regarding stop losses, trailing losses etc and it still didn’t help. I didn’t make one big 4000 dollar loss, I made a series of 250 dollar losses and the end result was still the same.

The main reason I entered Forex is not even for trading on a day to day basis. I just wanted to enter AUDUSD trade and forget about it till there is some big rally for a few months that would have taken in back to the .95 levels. That’s all I wanted to do. Pure long term trading. However, I didn’t know how to do it. So I resorted to day trading, which obviously was very risky.

Anyway, it looks like some of you that were once in my position reversed their fortunes by better money management and focusing more on CHOSING the proper trade in addition to MONEY MANAGEMENT. I should fill that gap in my trading system and be extra careful. Also, one thing I didn’t mention before, I was up all night the first night because of the rush it gave me. That has to stop too, I hate gambling, never once gambled in my life. But, staying all night trying to make my money back is a classic gambler’s behaviour. That’s according to a friend of mine.

To end this rather long ranting, let me console myself with this. A friend of mine said that I should take this as an expense, lets say that would have cost me to take lessons or seminars. So I will take it as that and use this experience to make myself a better trader.

13

killerraj, I’d like to tell you about ATR, Average True Range.

Getting stopped out is frustrating as hell, especially when you’re right overall. But how are you supposed to protect your capital, yet stay in the trade long enough to profit from your idea?

Well looking at the average range of a particular candle, you can tell how volatile the market will likely be over a certain period of time. This can give you a hint that maybe your stop is going to get hit, just due to the inherent volatility of the pair!

Let’s look at AUD/USD. I’m looking at an hourly chart, and currently the ATR for the past 24 candles is 52pips. That means that in current market conditions, a stop placed within this 52pip average range has a relatively good chance of being hit IN A SINGLE HOURLY CANDLE!

Now stop loss placement gets pretty tricky. Not only do you have to worry about direction, but now you have to worry about its volatility too! There are ways to get an edge on the volatility however, such as trading with the trend on your chosen timeframe, as well as buying/selling around significant support/resistance levels.

But I think if you keep an eye on ATR, which will vary depending on the time of day and day to day market conditions, you will have a MUCH better idea of how close is too close for stop placement.

14

^ good idea.

Another thing to consider when placing stops is local support/resistance. If you’re going short and above you nearby is a resistance line, then placing you stop just beyond that can make it a lot safer (and below support when going long) Remember that round numbers can act as a kind of support/resistance, too. How much of a gap to leave between these features and your stop loss will depend on the volatility of the pair. Look back on your charts to see what would have happened had you entered a trade and placed a stop loss at a certain point - get an idea of how far you need to leave on a certain pair.

And remember, if you’re around, you can always actively manage your stop losses. If I’m in a winning trade that isn’t cutting back and forth accross break-even, then I’ll my my stop loss to that point. When you do that will depend on the pair and its volatility, the strength of the move, [I]etc[/I]. Don’t let your winners turn into losers. In fact, you could make your stop loss at +1 pip instead of break-even. At least that you’ll get a “win” even if it completely reverses :slight_smile:

15

Well like you said, it sucks but I’ve gone through the same thing…

I started with $70 account balance, got it up to $94, wanted to break $100, and went down to $80, next week made it up to $101 or $105, somewhere around there, next week dropped down etc, etc…

Well recently went down to $2 somthing, 2 flipping dollars!

Finally I relazed what I was doing, I wasnt following my system… I was trying to chase the market instead of waiting for the market to make its move… big mistake… and I’ve noticed that money managment cannot do its job when you dont have a decent win:loss ratio… and a 0:infinite is a bad ratio :wink:

A few pips up for 100-200 pips down, money managment cant help you make money with that, a 100 pips up for 20 pips down, then money managment can help, hell it can help with 50:50 win to loss…

Anywho, I was where you are, and I revisted where you are recently and I have lost alot, hopfully this lesson will stay with me, follow my system to the letter…

Wha thappend to me is I would start making money and then get stuck in the same frame of mind, and not looking at the charts the way I did when I started, and I lost everytime I did that… After awihle I even chased the market – thats where half my money went!

I felt hopless, and lost, untill I took a few steps back (I was too upset for ‘one step back’ to do me any good :stuck_out_tongue_winking_eye: ) let myself calm down and think what I did diffrently now then I did when I was profiting a fair ammount!

Good luck to all of us who for one reason or another dont follow our system(s)

16

Hi
I am also new too the forex game,and was wiped out on thurs night NZ time when the feds introduced funds too the market:(
Is that fair?
However I must admit that I was over extended,hoping too short nzd/usd and usd/jpy in the hope that one would balance the other!
I must be a real newbie Huh?
Im gonna get back in but not be so greedy and/obstinate next time.
My best trade so far has been taking nzd$2000 to $5800 in 6 hrs so far so maybe if I can learn the business I can increase my wealth as we all want to do.

17

Mate!! I feel bad for you, if you actually took 2000 all the way to 6000 and then lost it all, that really sucks. I guess you and I have truly good ideas but both suck at execution. I learnt my lessons and now I am going to be extra careful. good luck.