How many losing trades in a row can you handle and not be bothered about it?
If you do these 2 things I’m going to explain here, you’ll have no problems with 20 losing trades in a row, over even 30 losing trades in a row.
And how do you recover from 20 losing trades in a row? Or even, how do you recover from 30 losing trades in a row?
I will explain those two things a bit later in this post.
All Forex Forex Trading Systems Have Certain Market Conditions That They Will Not Perform Well
You see, all forex trading strategies have weakness…these weakness can be certain market conditions where they will not perform well.
For example, a trend trading system will not perform well in a ranging market and vice versa.
Understanding this essential fact about your trading strategy is really important because when you are having loosing trades in a row, you will still trade because you know, these losing trades cannot go on forever. There’s got to be a light at the end of the tunnel.
For many new forex traders, having many losing trades in a row on a live trading account can freak them out completely because all they see is the trading account balance getting smaller…and smaller.
And what they do next is called “system hoping”. System hoping simply means trying one forex trading system and when it does not perform well (like having 10 losing trades in a row), then they dump it and look for another one. And the process tends to repeat itself all over again.
This is like searching for the holy grail of forex trading which unfortunately does not exist.
So how can you as a forex trader have 10 or even 20 losing trades in a row and not be bothered about it at all?
Well, its when you do these two specific things….
#1: Risk A Small Consistent Percentage Of Your Trading Account For Each Trade You Take
I bet you’ve read this before but this is one is the the number one factor you will not be bothered if you lose 20 trades in a row.
To put this into perspective, let me give you an example about two imaginary forex traders, Trader A and Trader B.
Trader A is a professional and successful forex trader while trade B is a new forex trader who just has been trading for a few months.
Here’s what Trader A does every time he opens a new position:
- he risks only 1 % of his trading account.
Trader B trading risk allocation is different:
- He would sometimes risk 5% and other times risk 10% of his trading account in one trade. At some other times, he would risk 2%. In other words, trade B is not risking a fixed percentage of his account in each trading position he opens.
Now, lets assume some things for both forex traders:
- both traders are using the same trading system
- and so they both buy and sell at the same time based on what their trading system is signalling them to do.
- they both take 20 trades at the same time.
What could be their situation at the end of the 20th trades? Well:
- Trader A would have lost 20% of his trading account by the end of the 20th Trade.
- Trader B have would have most likely lost 50% of his trading account or even worse, would have blow his forex trading account up by the 15th trade.
You see what I’m saying here? Getting the picture?
Losing trades in a row happen if you like it or not.
And the fact is, if you are not allocating a very small percentage of your account for each trade you take, then those losing trades in a row can blow up your forex trading account.
#2: Trading Risk:Reward
To recover from 20 losing trades in row, you got to have a trading system that can be able to give you these 2 things:
- the profits made must always be greater than what you risked for that trade, which simply means your trading risk:reward ratio must be 1: 2(or above)
- or you must have a high percentage winning system for a system that has very low risk:reward ratio, for example: 2:1 ratio or 1:1 ratio.
Let me explain each of these so you will understand what I’m saying here.
In the first case, if your risk:reward is 1:2, this simply means that one profitable trade recovers the money lost on 2 previous unprofitable trades. So this means that that if you have 20 losing trades in a row and after this, if you have 10 winning trades in a row, you would get your forex trading account to where it was before.
To me, having a risk:reward ratio of 1:2 and above makes much more sense because:
- it makes it much more easier and faster for you to recover from losing trades in a row
Now, lets go to the second case of just having a 1:1 risk:reward ratio…For this, you will have to have a really good system that pumps out a lot more wins than loses for you to be able to recover from 20 losing trades in a row. The problem with this risk:reward ratio of 1:1 is that you will have work a lot harder to recover compared to a trading system that can deliver 1:2 or 1:3 risk to reward ratio (the higher the better!)
Now, having a trading system that has a risk:reward like 2:1 is to me, crazy. It almost like saying that for every step forward you take, you move two steps backwards.
It does not mean you cannot make money with a trading system that has such a R:R ratio like that, you can make money with this but you really got have a high winning rate.
The second problem with this is that fact that it doesn’t take a lot of consecutive losing trades in a row to wipe your account completely due to the fact that you are risking two times more than what you are risking for each trade.
So really, when it comes down to it, you really go to risk small percentage of your account in each trade and let your profits run essentially.
That’s how you can recover quickly form consecutive losing trades in a row and continue to increase your forex trading account.
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If you are trading and your risk to reward is 1:1 or worse, you will have to really have a high percentage winning system that can give you a lot more wins but you really have to work extra hard to recover form 20 losing trades in a row.