The dreaded blowing up of an account blow up. Some people have experienced this – even multiple times. Others have not experienced it yet, but will soon. Others will never experience the trading blow up.
First of all we need to define what is a blown trading account. Obviously if you lose 100% of the money in your trading account, then you have blown it. The money doesn’t exist anymore. You lost it. You blew up.
Definition Of A Blown Trading Account
But that is not the only definition of a blown trading account. If you take catastrophic losses, say 50% below your initial deposit, and you give up on getting your account back to its previous size, then that can be considered a blown trading account as well. The huge losses just put you on tilt and you just said to hell with it and started placing wild, leveraged trades to get your money back. Probably a few revenge trades mixed in there as well. You may not lose all 100% of your money but if you lose over 50% of it, then for some people that is a blown trading account. They yank their remaining money and either quit trading, or are sick to their stomach for a few months and need a break from the markets.
Some people are destined to blow their trading accounts. Their gambling ways, or no stop loss ways, or extreme leverage ways are bound to catch up with them. Maybe they catch a nice trend or two, but they are bound to blow up. Deep down inside they are not really looking for steady consistent returns. They are looking for action.
But there is also another group of traders who kind of have to blow a trading account or two in order to learn the harsh lessons and position themselves for future success. For whatever reason, the usual small trading losses and market knowledge that they gain from books, videos, articles, forums, etc is not enough for them to kick their bad habits. For these people they just eventually need to experience the intense pain of having a blown trading account. They have to blow an account to finally “get it.”
To stare at their depleted trading account and finally say to themselves “what happened?” Or “how could this happen to me?” Some of the intense pain can eventually make them say to themselves “never will I trade like this again.” They hit rock bottom.
And to some people going broke or losing a trading account can be a very good learning experience. It sucks when you are there. But eventually a recovery takes place. Hopefully a quick recovery. And as you get out of the hole you discover many new things about yourself and the markets.
You figure out that money is replaceable. Easily replaceable. You realize that the markets are not going anywhere. You realize that the great moves and great trades will never end. They will just continue on occurring and occurring. You realize that it doesn’t matter if you just missed a 500 pip move. You realize that there is no need to over trade or leverage up too aggressively.
Does Everyone Need To Blow A Trading Account?
Even though there are some people who are destined and others who need to blow a trading account, you do not have to go down that path. You do not have to blow a trading account or two in order to succeed in trading.
You will have to take a few losses. Sometimes a few nasty ones. But you should never need to blow an account.
If you follow some decent money management rules. You risk something very low like .25 – 2.00% per trade. You use stop losses. You position size appropriately every time. Even then, it is possible to take a few losses, sometimes a large consecutive series of losses. But since you are risking a small amount per trade, your losses should be capped at somewhere between 5-20% of your account.
If you break the % risk per trade rules next time you just get an itch that you think it is going to be a “big trade”, then you might leverage up and start taking big losses if those trades are a loser.
Some Japanese currency traders did not follow any proper risk management rules and they blew up spectacularly on the first sign of a market reversal of the carry trade.
Doesn’t mean you shouldn’t learn how to go for the jugular at certain times. But going for the jugular requires deep order flow analysis. It requires extensive order flow study, implementation and execution. Deep technical indicator, forex robot, chart pattern, or price pattern analysis, isn’t going to help that much when it comes time to know when to go for the jugular.
What Did I experience?
How big were my losses? Probably around 20-30% from initial account size before I got into order flow trading. Once I got into order flow trading I never dipped below the initial deposit. I did take a 40-50% drawdown from my peak account size. That felt nasty. But I had already booked many wins and profits that I was still up substantially from my initial deposit.
How did I do it? Well when you first open an account you want to set it on the best possible track. And what better way than the make sure your first 2-3 winning trades are all winners and make you a lot of money. Can you actually “make sure” that your first few trades are winners? Well there is always risk in trading, no doubt about that. But there are a few nifty tools, strategies, principles, and mindset thinking that you can use to put the odds greatly in your favor.
Took months of order flow research to get there, but I got there. So can you.
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