I am a walking, living, advertisement for what not to do when you trad Forex. This article is about how I lost $1000 in one day trading Forex. Before this big one day loss, I was trading fairly small and mostly breaking even. I thought that I could swing for the fences in one shot and earn a huge amount. For awhile it worked but then variance hit me in the backside and I was down for the count. This is painful to write but I hope it helps someone out there in the trading world.
Before trading with live money, I was mostly trading in a demo account. In a demo account your wins and losses do not mean anything because it’s all fake money. The bad thing about this is that a winning system in a demo account might prove to be a loser when you trade real money. How is this so? This is so because when you are trading fake money, you do not have any fear of ruin. There isn’t any fear to slow you down. Shoot even the amounts of money you trade in a demo account is crazy.
Like all wannabe super traders, I took my winning demo system to a real account. I saved up $1000 dollars to trade with. At first, I was trading pretty good. I had minor wins and losses. I was using a good money management strategy that kept me from losing too much money. My problem, unfortunately, lies in the fact that I get bored easily. I strive off of action and this form of safe trading was boring, it wasn’t fast enough. I decided to make trading more excited and this was to the detriment of my account balance.
In my attempt too make trading Forex more fun and exciting, I raised the leverage on my account and I was trading 10% of my account on every trade. I think I pumped the leverage up to 300:1 or something ridiculous like that. It was a fools move and I was a fool. My goal was to scalp the market for micro pips. I wasn’t even trying to earn a single pip. I set my Take Profit to 1 pip and my stop loss to 4, this is a 4:1 ration. What this means that for every one loss, I would have to win 4 times in a row to break even. Again, only fools play this way.
I had some success trading like this, I was snatching up .20 of a pip and because of my high leverage, this was a nice amount of money. My down fall came when I started to lose trades. I could never overcome that 4:1 ration because it called for an unreal winning percentage.
I’m still a fan of scalping and taking chance but you have to do it intelligently. Your ration has to stay at 1:1 and you need to have high probability set ups.