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Methods of dealing with the fear of drawdown
Among all emotions during Forex trading, the concern of losing a deposit is well-received, which brings lack of positive upshot. This is the psychology of Forex and traders are more concern about not even losses as losses are the demonstration of an integral element that leads to profit. Losses are usually shown in a string of unprofitable transactions, and it is not crucial if before the trading plan brought only profit. Trader often believes that if he/she encounter three or more unprofitable trades, then this trading system is impeccable and trigger loss of the deposit. And the trader starts to search for the Grail- a flawless trading platform that delivers only profits and no losses. Thus, the trader starts to filter out strategies one by one, which can turn out to be successful in future, but then they were removed from the trading systems portfolio because of several unprofitable transactions. In the meantime, volatility keeps growing, going into an area of fear of a drawdown and a feasible loss of a deposit. The number of such traders is constantly developing, so this article will demonstrate the fundamental methods of dealing with the fear of losing the deposit.
The reasons for the fear of a drawdown deposit.
It is shown that traders are concerning about a drawdown not only during trading on real accounts but also during trading on a demo account, which assures no loss of real money. What is the cause of this fear? Firstly, the feeling of dissatisfaction is the reason for this. The trader begins to obsess about why there was the loss, what are the mistakes, whether because of flaw trading system or because of his/her mistake. Secondly, it is because of the loss of time. The trader who believes that he/she chooses an inappropriate trading system will begin to look for a perfect strategy, which wastes more time to search. Finally, the emotion of the trader is affected by the drawdown of the deposit. The trader who can not make a large allocation often is impacted by losing trade, which is hard to hit. All these causes combine, triggering to fear of a drawdown of the deposit, because of which the trader cannot successfully trade. Hence, this article recommends some effective methods.
1. How to lose on Forex? It is difficult to lose to Forex. A trader should start with a demo account, seek for trading system and trade on it by following the regulations and observing the mani-management. The trader should also utilize fixed stop-loss and take profits, trade on one currency pair, do not hold more than one transaction open and use the minimum lot volume. Trading did not take the trader a lot of time, a trader should trade one daily chart and open the deal once a day when indicators appears. The trader, in a few days, can be prevailed upon that he/she cannot merge the deposit for a couple of transactions. In most case, the trader will be slowly draining the deposit, and it is not removed and profitable transactions. This strategy is very efficient, as it will direct the trader to easily deal with the drawdowns on his/her account. By applying competent Forex capital management with fixed stops and abiding the regulations of the trading platform, the trader will learn not to aware of the recent drawdown, as he/she will understand that the risk of losing a deposit for several running transactions is practically declined to zero.
2. Positive risk-to-profit ratio
Senior traders suggest that the stop-loss was at least three times less than the take-profit. This equation allows the trader to stay in the positive area even in the context of an elongated drawdown. For instances, the ratio of risk to profit is 1 to 3, 10 deals were closed, of which 3 were closed with a profit and 7 were closed with the loss, and the stop loss is 100 points as well as the take-profit is 300 points. Then the total profits will be 3×300-7×100 = 900-700= 200 points. Thus, despite 7 losing trades out of 10, the trader can earn 200 points of profits. The trader, therefore, should look at the total picture of the reporting period- a month, a quarter or a year to determine whether the trading system is profitable or not.