Losing money

[king786]

Hi, not sure if this is the right place to post this post but here we go.

I have been trading for about 6 weeks and have in totaled invested around £2800, my FX trading was going well till about 2 weeks ago when I had around £6000 in my account and I withdraw £1600. I had around 15 buy and sell trades open which were all making major loses. As my equity was getting lower and lower the trades where closed by the broker because of not enough free cash in my account (i dont like using stop loss as I have seen the market change in favour of my open trade).

Eventually the losses were more then the money I had in my account so all the trades were closed so I decided to start all over again and deposited £200 into my account the first couple of days were okay and I made around £88 in profit and again the same pattern occurred where my trades took a turn for the worst and I was making major losses and again I lost all my money and this happened today.

Strategy wise I like to have a look at different sources of data to analyse whether a trade should be a buy or sell.

So my question to you guys is where am I going wrong?
How can i change things around?
Any specific currencies I could look to trade?

At the moment I am looking to take a break for a week or so and then get backing into trading, so would appreciate your advise and feedback. Thanks

 

[barjon]

..................(i dont like using stop loss as I have seen the market change in favour of my open trade)...............

Your recent experience should be telling you that the "maybe" of a market change in your favour is not worth hoping for since you can get wiped out - as you have - on the occasions that it doesn't change.

Control your losses.

 

[timsk]

Hi king786,
Welcome to T2W.

So my question to you guys is where am I going wrong?

The single largest mistake you're currently making is to trade a live account before you have a thoroughly tested methodology. So, the first thing to do is to stop trading real money. Now! Apologies for shouting, but you'll only lose more money if you carry on as you are. Switch to a demo account and only move on to trading real money as and when you have a methodology that works.

How can i change things around?

Following on from the above, I suspect the aggregate of all your open positions is way too large - relative to the size of your account. This would explain the rapid growth you enjoyed when your trading was going well at the start. Taking on board the contents of this Sticky will help: Essentials Of 'Risk & Money Management'

Any specific currencies I could look to trade?

I don't trade forex, so I'll pass on this and let someone who does offer their view. However, I would ask why you've opted for forex in preference to other markets? What research have you done and how have you concluded that forex is the best market for you to trade? If you've just jumped on it without giving it much thought because that's what everyone trades, then I recommend you take a step back and review your decision. If you do that, this FAQ may be of interest: Which Should I trade - Stocks, Futures or Forex etc.?
Tim.

 

[king786]

Thanks for the replies guys, its been very helpful.

I did have a demo account which I used for around 2 weeks. But I was eager to get started.

The leverage I am using is 1:500, the reason being it will maximise my profits and maximises my losses as I have experienced. Is this the right leverage to use? My trade sizes were normally between 0.10 and 0.50 and with my largest trade being 5.50.

What I am stuck at is when you guys mention strategies, methodologies and trading plan, if somebody can elaborate and provide examples it would be great.

Any literature you guys can recommend to read would also be great.

 

[barjon]

Thanks for the replies guys, its been very helpful.

I did have a demo account which I used for around 2 weeks. But I was eager to get started.

The leverage I am using is 1:500, the reason being it will maximise my profits and maximises my losses as I have experienced. Is this the right leverage to use? My trade sizes were normally between 0.10 and 0.50 and with my largest trade being 5.50.

What I am stuck at is when you guys mention strategies, methodologies and trading plan, if somebody can elaborate and provide examples it would be great.

Any literature you guys can recommend to read would also be great.

You could do worse than work your way through the links in Timsk's signature to his post - particularly the trading plan one.

 

[timsk]

Hi king786,

Thanks for the replies guys, its been very helpful.

I did have a demo account which I used for around 2 weeks. But I was eager to get started.

As per my last post, you might like to re-think this!

The leverage I am using is 1:500, the reason being it will maximise my profits and maximises my losses as I have experienced. Is this the right leverage to use? My trade sizes were normally between 0.10 and 0.50 and with my largest trade being 5.50.

I've no idea who you are using that offers leverage at such high ratios, but my guess is it's not a U.K. or U.S. regulated broker? When you had £2,800 in your account, with leverage set at 500:1, potentially, you could control a massive pot of £1.4 million. If the market went against you by a mere 0.1%, you'd lose -£1,400.00, i.e. 50% of your account. (This is known as a drawdown.) Needless to say, if the market went against you by 0.2%, then it's bye-bye account or, to use traders' jargon, a 'blow up'.

Having vast amounts of available leverage without a rock solid risk management strategy in place is akin to emptying an industrial size box of razor blades into a child's playpen. It ain't gonna end well! So, no is the answer to your question - you're using waaaaaaay too much leverage, combined with what appears to be no risk management strategy. Carry on as you are and it's virtually guaranteed that you'll lose all your money.

What I am stuck at is when you guys mention strategies, methodologies and trading plan, if somebody can elaborate and provide examples it would be great.

As per Jon's suggestion - take a gander at the links in my signature.

Any literature you guys can recommend to read would also be great.

If you follow up on the links contained in the Stickies - you've got plenty to be going on with!

Tim.

 

[king786]

I am going to get back to the drawing board and start al over again, I will be reading the links in your signature and opening my demo account again.

I am using fxpro and they do have a leverage of 1:500

if somebody can give an example of a trading plan, methodology, and strategy they have used in the past or are using that would be great.

 

[timsk]

Hi king786 (again),

I am going to get back to the drawing board and start al over again, I will be reading the links in your signature and opening my demo account again.

Wise move!

I am using fxpro and they do have a leverage of 1:500.

Apologies, my mistake. I'm surprised though, as 500:1 is on the high side even for forex.

if somebody can give an example of a trading plan, methodology, and strategy they have used in the past or are using that would be great.

You appear reluctant to click on the link in my signature king? Don't worry, it's not a trick, it won't bite!

As for using someone else's approach, I'm afraid it doesn't really work like that. Think of a trading methodology as being like a very well worn pair of shoes. They may be loved by their owner, but they're of little use to anyone else.
Tim.

 

[king786]

I am not reluctant to click on your links I just wanted to analyse and benchmark what others have used and it will give me a good starting point.

I am reading the links now.

 

[alexaherself]

The leverage I am using is 1:500

Ouch!

It's difficult to add a lot to Timsk's excellent posts above, but ...

One way or another you're profoundly overstaking, i.e. your position sizes are far too big in comparison to your trading funds. How do I know this? Well, you started off with £2,800 and after 4 weeks had built it up to £6,000. And then you started off again, later with £200 and after 2 days had built it up to £288. I don't mean it impolitely at all, but both those scenarios are really indicative of gambling, rather than trading. I haven't heard of anyone making forex profits of those sizes on funds those sizes over timescales like that whose trading is profitable overall.

Any literature you guys can recommend to read would also be great.

Yup - no problem there. What you need help with is position-sizing. So here are the two best books I've read which include detailed consideration of that issue ...

Beyond Technical Analysis - Tushar S. Chande (read this one first)

Trade Your Way To Financial Freedom - Van K. Tharp

Good luck!

 

[king786]

Ouch!

It's difficult to add a lot to Timsk's excellent posts above, but ...

One way or another you're profoundly overstaking, i.e. your position sizes are far too big in comparison to your trading funds. How do I know this? Well, you started off with £2,800 and after 4 weeks had built it up to £6,000. And then you started off again, later with £200 and after 2 days had built it up to £288. I don't mean it impolitely at all, but both those scenarios are really indicative of gambling, rather than trading. I haven't heard of anyone making forex profits of those sizes on funds those sizes over timescales like that whose trading is profitable overall.



Yup - no problem there. What you need help with is position-sizing. So here are the two best books I've read which include detailed consideration of that issue ...

Beyond Technical Analysis - Tushar S. Chande (read this one first)

Trade Your Way To Financial Freedom - Van K. Tharp

Good luck!

What leverage do you suggest I use? What leverage do you use?

How did you develop your strategy and trading plan?

 

[alexaherself]

What leverage do you suggest I use?

This isn't your main problem, and maybe isn't the most appropriate question for us to be discussing, but 1:50 is plenty, for your first year or so.

What matters is "what's the maximum that you can lose on any individual trade if your trade totally fails and loses as much as it possibly can?". That probably needs to be no more than about 1.5% of the capital you have in the trading account (and maybe 1% would be safer and better, for your first year or so).

That's the short answer, anyway.

A longer answer is that you work this out, accurately, to cater to your own trading methods, from a little arithmetical formula based on your "strike-rate" (percentage of winning trades), average profit per winning trade, and maximum loss per losing trade. Both the books I mentioned above explain in some detail how to do this, and it's an important thing to understand before you start trying to identify profitable trading methods.

What leverage do you use?

I use whatever leverage means that on each individual trade I'm placing at risk £1 per pip for every £1,000 in my trading account. But that isn't in itself helpful information for you, without you knowing many more details of my trading methods and especially my stop-loss sizes. (I'm actually trading by spread-betting because I live in England and don't have to pay tax on my profits, if I do it that way - which makes an enormous difference to my net results over the year. I have other reasons for preferring spread-betting, too.)

How did you develop your strategy and trading plan?

Short answer: by studying all Joe Ross's books, and getting in years of practice ("sign of a mis-spent youth").

Longer answer: my father does this for a living, and has done since before I was born, so I had a bit of a start. It still took me a very long time, and a lot of practice, to be able to come up with any reasonably steady trading methods that suited me and had a net positive expectation which was significant enough for them to be safe and reliable for me to trade. I'm a technical analysis trader (I don't like "fundamentals" and prefer to have as little to do with them as possible), but I also don't like and barely use "indicators" at all, and I think they're not helpful or useful to the overwhelming majority of amateur traders, but just a huge and largely misleading distraction. (There's plenty of "technical analysis" that doesn't involve "indicators" at all.)

None of this really matters, though: what matters is how you can develop a trading method with a net positive expectation, that can actually work for you. But you need to start by understanding position-sizing ("staking") because at the moment you're overstaking so much that even a genuinely profitable system is still eventually going to wipe out your account, just because of its inevitable variability/standard-deviations/fluctuations (something else you can read about in both the books I mentioned above). And of course Timsk is 100% right that you should be using a "practice account" rather than a real-money one. Apologies if I sound pessimistic: I'm just trying to be realistic.

 

[SlowlyButSurely]

If you don't use stops it is just a matter of time before you lose all your money. Below is an excerpt from a thread i started, it outlines the main principles of my risk management:

"So obviously whether new or old in the trading game we have heard of the importance of risk management but from reading posts from new traders here and indeed from my own struggles understanding this in the beginning it is easy to make mistakes in this area so I will outline my own personal approach:

I will often look for small profits whilst risking a smaller amount of capital. I also look for tight plays, risking just 5-15 points for moves anywhere from 8-30 points. I do this because I found that aiming too big left me missing out on profits too often and on top of that it meant a trade could last several days at which point swaps became a big issue.

I use a conservative SL because a push much higher will prove my theory and reasoning wrong and if I am wrong, I need to close out of my trade. Simple! Placement of the TP is also important here. I want to have it above a point I know it is likely to revisit. Any lower and it may never reach my target, and higher and I could miss out on potential profit. With this said I like to monitor price always, as it approaches my TP it may hold just above, at which point you may see through PA that price is likely to rise again and may exit prematurely. I say that this is fine if your profit is greater than the initial risk of the trade.

Your Risk:Reward ratio should always be greater than 1:1 so that if you only get 50% of trades right, you are still profitable. The technique I have shown and tried to explain should allow you to risk a relatively small amount of capital for a decent gain. It may not sound much but if you are able to risk 10 points for a gain of 15 then getting one right and one wrong each day will still leave you up 5 points. With £5,000 capital, trading just £5 per point (1% risk) would net you £25 per day which over 150 trading days in the year (low as some days no setups will show themselves) then you would make £3,750.

Of course these are fictional figures used simply to illustrate a point, but it is important to put significance on the R:R ratio as it is vital to be successful. Taking a trade and getting it right are hard enough. No matter how good you are you will get them wrong so having a good R:R ratio is key in my opinion."

 

[Splitlink]

Yes trading in Demo account is very necessary for every new trader in Forex. With Demo trading they can get education and experience in Forex.

Tim's last paragraph was right on the nail.

You will get ideas from other people but I doubt whether you will be able to do the exact trades as they do, Human nature being what it is you will tinker with it in some way, different timeframe or average, whatever.

That does not matter. Ideas that you can adapt into your style are always welcome

You be careful with your account management. Stops are a nuisance but they are like death and taxes. Slap a stop on every trade so that if there is a crash you do not get cleaned out. They do not have to be too close, but you should have the satisfaction of knowing that your account is safe and, then, you can close manually, if you wish. Watch your risk/reward ratio, too. These two points are your main problems, in my opinion.