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A Traders Nightmare: How To Deal With Rapid Growth And Loss

October 18, 2018 Posted in Forex Trading News by No Comments

When you start trading currencies, you are bound to read plenty of articles containing advice about how to build your assets quickly. The goal, of course, is to become rich fast, without investing too much.

A Potential For Fast Returns

When you are trying to decide whether to start trading or not, you are also probably wondering if you will keep your day job or be a full-time trader, as well as how fast you can earn money. All these are valid questions, as trading is an activity that demands plenty of attention. You need to follow the news of the world closely, do your maths, and make wise trading decisions. To make money, you need to repeat these actions repeatedly.

The Forex market moves fast and offers high leverage. There is, therefore, the potential for a fast return on your investments. This has been particularly true when it comes to cryptocurrencies.

The Winklevoss Twins

Since Bitcoin entered the world in 2009, stories about those who have earned millions investing in it, or other cryptocurrencies, have multiplied. The story of the Winklevoss twins is one of the best known. Back in the days, they created ConnectU, and later they sued Facebook for stealing their idea. This earned them 65 million USD, which they invested in cryptocurrency. Now, they are reputed to be Bitcoin-billionaires – or at least they were before the recent wipeout.

Benefits Of Trading With Bitcoin

Due to the great number of benefits these currencies have to offer, Forex traders have taken Bitcoin to heart.

There is no central bank who can change the valuation. Neither is Bitcoin influenced by inflation or interest rates. The trading profit is further improved by the fact that there is no added transaction cost in connection with deposits and withdrawals. New traders, who want to make money without having to invest too much, can start off with only a small investment. The many benefits have turned Bitcoin and other cryptocurrencies into a means of getting rich, not only for experienced traders but for those who have never traded before.

Cryptocurrency Drop In Value

10th of October 2018 turned out to be a day those trading with cryptocurrency hoped only to occur in their nightmares. Within 24 hours Bitcoin dropped more than 4%. Six of the other digital currencies had losses of 8% or more. The staggering total loss amounted to more than 13 billion USD.

The reason, or at least one of them, was a report issued by IMF, the International Monetary Fund. The report was a warning about the rapid growth in the crypto market. 2018 has proven to be a year when regulators in countries like USA and China have recently come down hard on digital currencies. Bitcoin had its first crash in 2013, then reached an all-time high in 2017, but it doesn’t seem like this is going to be repeated in 2018.

How To Bounce Back After A Loss

Bounce back after a lossThe first thing you should do if you experience a big loss is to take a break from trading. Just for a couple of days, so you can clear your head. The shock of losing will not leave you in a state for good decision making. After your break, you should look at your trading plan, as well as the events that lead to the loss. Try to analyse, and then make the necessary changes to your plan.

If your self-esteem as a trader hits rock bottom, you can restore your confidence by trading in a demo account. When you start live trading again, don’t forget to start small. Remember the immediate goal is not to earn back all the money you lost but to get your confidence back and implement a trading plan that will work.

No More Nightmares With Forex Risk Management

If this kind of nightmare is not for you, then you should implement Forex risk management. This will not prevent you from experiencing any losses. It will, however, prevent the losses from continuing and prevent them from draining your account.

Position sizing is an important element in your risk management. It helps you determine the number of units you can trade before you have reached your designated level of risk. To calculate this, you must know:

  • Value per pip
  • The dollar value you’re risking on each trade
  • The distance of your stop loss

When you implement this strategy on your trades, you will no longer risk losing it all in one or two bad trades, as you will only risk a fraction of your trading capital with each trade.

To Sum It All Up

The best ways to deal with rapid growth and loss is to:

  • Create a trading plan
  • Implement forex risk management and calculate position sizing
  • Follow the news of the world closely
  • Learn the history of the currency you are trading with
  • Don’t fall for any “get immensely rich quick” scam

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