Forex Trading Wipe-Outs

If you've ever traded in the foreign exchange markets, the chances are most of you have had an account wipe out. You've gone into the Forex market with high hopes, with a high expectation of making a lot of money and with low expectations of losing that money, however, most new traders have their low expectations come true and wipe out their entire Forex trading capital within weeks.

It's a horrible feeling being caught in a bad trade, over leveraged with no pre-determined stop loss. For those of you who haven't experienced this, the following is an example of what so many have experienced in the Forex; we will use imaginary Joe as an example.

Joe has been conscientious and disciplined in his Forex trading, building up his account slowly. He has just had a win on a huge breakout that has made him a lot of money. He closes his positions and takes profit. He feels great and his adrenaline is flowing through his body. He tells himself that he isn't going to trade for the rest of the day. About 10 minutes after his take profit, he notices price breaks through the next support level; he watches the price drop 50 pips in 2 minutes. He thinks, 'I don't want to get into this trade now, it could reverse'. The price drops a further 50 pips and touches a round number and continues to hover around that round number for a few minutes. Joe thinks to himself, 'Get in on the action, you could make a lot of money on this trade'. So Joe jumps into the trade, selling 5 times as many lots than he usually would. The price bounces back up from the exact place he put his sell order at. Price continues to climb 30 pips, so he adds another short position, price rises a further 20 pips, so he adds another over leveraged position. Price continues to rise a further 50 pips and he adds another short. Joe is now in a position where price can only go against him a further 70 pips before he has a margin call.

He can't short any more as his free margin is tight, there is nothing else he can do apart from close the positions or wait it out and hope the price reverses. He is sitting at his computer, nervously biting his nails, bouncing his leg up and down in anxiety. He feels like a cornered animal with nowhere to go, a man standing on the execution line with no way out.

He thinks, 'Should I close the trade now and get out with a 30% loss?... But you can't take a 30% loss, how can you tell your family about that; and besides, it's going to reverse any moment.'

The price keeps moving up and his account equity is decreasing. He watches his position in somewhat a daze, a little angered that he let himself get into this position. Joe says to himself, 'If I get out of this situation I'm never gonna be so silly again and risk so much'. With his hope of recovery hanging on a tiny thread, his free margin is decreasing until it becomes zero. His broker automatically stops out all of his positions and Joe is now left with 25% of his balance. He hits his desk in anger and feels deflated. 'I hate the Forex'.

For those who have wiped out their account, that may sound familiar. It may not have happened to you in that exact way, but the same principles apply. We are humans and we all make mistakes. The question is, what do you do when you make those mistakes? Do you throw in the towel and determine Forex trading isn't for you, or do you grind on, look at what you've done wrong and refine your trading skill set?

For some, trading the Forex really isn't the best business for them to be in; it just doesn't suit who they are, but for others, they have the potential but just need to practice and learn more. Sometimes a forex trading forum can help beginners get on their feet, however sometimes this is just a classic example of the 'blind leading the blind'.

Michael Marcus, 87 million dollar trading prodigy blew several accounts when he first started, but he remained diligent and continued to learn.

Therefore I pose this challenge to you. If you believe you have what it takes to become a successful trader, really dedicate yourself to learning what things make a good trader and then practice those so they become habitual parts of your Forex trading. Practice on a demo account until you are consistently profitable and then open up a small account, trading tiny amount, then build up from there. Dedicate yourself to learning and improving your skills as a trader in the forex market.