Building a trading account is something that can seem quite elusive to the struggling or beginning trader. The ironic part of it is that most traders tend to make building their accounts a lot harder than it needs to be. Most of this self-inflicted difficulty is due to the fact that trying to turn a relatively small trading account into one that you are happy with, is something that for most traders, induces the exact type of trading behavior that results in losses. How can you reconcile this inherent contradiction between your strong desire to build your trading account as fast as possible and the roadblocks to long-term trading success that this desire tends to place in front of you?
1. Don’t over leverage yourself.
Over-leveraging one’s trading account, also known as risking too much, is probably the single biggest reason forex traders lose money in the market. You must understand and effectively implement a sound forex money management strategy if you wish to survive long enough in the market to build up your trading account. Many traders make the mistake of becoming over-confident as they experience an early bout of success in the markets and as a result begin to risk more than they can afford to lose on any given trade. Once this emotional trading mistake is made it is very likely to kick off an avalanche of emotional trading mistakes that can literally dissolve your trading account much faster than you think. Define your money management strategy in your forex trading plan before entering any live trades and you just might be able to avoid this most ubiquitous of trading mistakes and build your forex trading account much faster.
2. STOP over-trading.
Why are you trading this particular setup? Ask yourself this question before you enter into any forex price action setup and you might just find yourself committing another widespread emotional trading error: over-trading. The reasons for over-trading are many and varied; the bottom line is that it can seriously hinder your efforts at consistently building your forex trading account. Probably one of the biggest reasons why traders over-trade is because they think they will somehow build their trading accounts faster by trading the market with a higher frequency. The fact is that on average, traders who trade smaller numbers of transactions each year typically make more money than their counter-parts. You should only trade if there is a sound logical reason, such as a very well defined pin bar setup or other price action setup. If you are trading just because you want to be in a trade or you are trying to make money “faster”, you are going to seriously delay increasing the value of your trading account.
3. START taking profits.
This one may seem surprising if you are new to trading, but ask any seasoned forex trader and they will probably admit to having let many profitable trades turn sour on them. The main culprit for this behavior is not having a pre-defined forex exit strategy. Most traders concentrate most of their technical analysis on their entries with the attitude of, “I’ll figure out my exit strategy after I enter the trade…I wanna see how it does first”. The problem with this is thinking is that you are setting yourself for an emotional exit, which will almost necessarily result in you losing money or making less than you otherwise would have. The only way YOU can successfully TRADE the market is by pre-defining all aspects of your trading actions, otherwise the MARKET will trade YOU, which means instead of mapping out your plan of action before the battle begins you will be forced to compete with your emotions during the heat of battle, and this almost always results in lost money.
4. Make a Forex trading plan.
Having an effective and tangible forex trading plan is your primary defense against committing emotional trading mistakes, think of it as the glue that holds everything together. Many traders simply ignore the fact that they know they should have a defined and tangible trading plan, or they think to themselves something like, “I’ll make one someday”. This is simply not how successful forex traders build their trading accounts. A forex trading plan will keep you on the disciplined trading path and will help you learn from past mistakes. It should not be viewed as a one-off static document, but rather an ever-evolving accountability tool that you can use to master your own emotions and as a result master the market. An effective forex trading plan need not be super in-depth or complicated, it might be as simple as quick-guide or checklist of things that you look for before entering and exiting a trade. The point of a trading plan is that you need to treat forex as a business and not as a trip to the casino, if you put effort into making an effective forex trading plan you will naturally think of forex as a business with costs (losses) and revenues (winnings), once you begin to do this you will likely see your forex trading account consistently increase in value.