Today I want to play a theme very important-account reduction.
Every trader will face this problem sooner or later, because losses in the forex market are inevitable. And if a professional knows what to do and has experience dealing with such a problem, then beginners often lose when faced with a drawdown, which leads to even greater losses.
What is a Margin Call?
Margin Call – is a “call”-notification of the broker with the requirement to deposit additional funds to guarantee open transactions.
If no additional funds have been received to the trading account after the Margin Call, and the losses continue to grow, then when the price reaches a certain value, the Stop Out procedure will start, and the brokerage company will automatically close part of the trading account. , and possibly all transactions in the trading account.
Causes of the reduction.
There are two possible reasons. The firrst reason for downsizing is poor trading strategy. Each strategy needs to be reviewed and only then used. No risk management will help if the strategy is not profitable.
The second reason
it is psychology. Even if you have a proven strategy, you can still lose money because you lose control of the situation. Discipline is the key to profitable trading. Act according to the strategy and even after a series of losses to adhere to the plan and not exceed the value of risk management, that is what a professional does and a beginner fails.
Newcomers try to win back what they’ve lost by opening deals in high volume, risking even more money, putting themselves at an even greater disadvantage. First of all, it is necessary to bear the losses, it is impossible to avoid them!
Accept losses, do not lose your head, trade more according to the rules, and then you will not only return, but also earn even more money.
An important thought!
Every beginner should remember that the more he loses, the more he will have to earn in the future to get to zero. It is very difficult to make 50% of the profit to the capital in a transaction. It is almost impossible to do 100%, but beginners do not understand this and invest a lot of money, open positions with a large volume and lose even more.
Losing 1% isn’t that scary, losing 10% needs to do 11% already to get to zero. Having lost 50% in the future, he will have to make 100% to go to zero! Don’t bring your account to this.
reminder: it is better to move slowly than to fall quickly and crash.
Decide the level of reduction.
Professionals do not allow your account to fall below reasonable values. A beginner brings his account to exhaustion in two or three trades. For a beginner, a reduction of -50% or -70% happens easily and quickly, a professional cannot afford this.
Each trader must decide for himself how much percent of the capital he can lose and still remain calm. For each person, these values are different, someone cannot survive a 20% drop in the bill, and someone lives comfortably with -50%.
up to 15% – normal work reduction.
16-30% It is not a reason to panic, but the time is coming to reduce the risks and intensity of trading. And it is also worth reviewing the status, market dynamics and the trading instrument.
31 – 60% It is the beginning of the end. If the account is down by more than 30%, trading should be stopped and a break should be taken. After that, come back with a modified strategy to make trading decisions.
Reduction is an unpleasant thing, but the main thing is not to start it and not to delay the time after exiting it.
If you have already fallen into a reduction, you must follow the following rules:
If you are using a proven trading strategy that has made profits repeatedly, then you just need to correct the losses and continue trading using the same strategy, but with a smoother money management system.
If the trading strategy used is no longer effective, then you need to correct the losses and find a new trading system that works.
Due to the fact that there are no exceptionally accurate methods of exiting the reduction, their additional actions will be reduced to the same operation. In this situation, the trader must identify weaknesses in his strategy and try to eliminate them. Reviewing risk and fund management approaches will also allow you to balance trading and avoid deep drawdowns in the future.
Being disciplined, following money management, trading systematically, and deposit reduction will not bother you.
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