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Nial Fuller

NIAL FULLER
Professional Trader, Author & Trading Coach

Why You Need To Protect Your Trading Account Balance & How To Do It

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By in Forex Trading Articles by Nial Fuller Last updated on | 29 Comments

Your trading account balance matters much more as you advance in your trading skill than when you’re beginning, yet in order to advance and learn you must risk real money, which in the early-days can be risky and lead to significant damage to your account. Seems like some type of “cruel” paradox, right?

What good is it to be a skilled and accurate chart technician if you have lost all your risk capital along the way? You see, in the early days of your trading career, it’s not enough to just be focused on learning to trade, you also must be focused on preserving and (ideally) slowly building your bankroll (money in your account) so that as you progress and learn you have sufficient funds to properly take advantage of your trading abilities in the future.

All too often, I see traders blowing out their accounts in the early days and they end up years later with a very keen eye for predicting price action movements, with little to no money to trade with.

This lesson aims to open your eyes to the significance of the capital in your trading account and how you can protect it, keeping you in the game long enough to reach your goals of becoming a consistent and profitable trader.

Can you and your bankroll survive long enough?

If you spend enough time analyzing and watching the price action on the charts, eventually things will really start making sense, you will start seeing the market as a professional trader does. However, as you may have gathered from the title of this lesson, all the experience / screen time and education in the world won’t mean a thing if you don’t still have your bankroll intact by the time you reach the point of trading mastery.

If a person decides to go solo skydiving for the for the first time and jumps out of the plane without first getting any training, instruction or practice from experienced skydivers, it would be potential suicide. The same holds true for a trader who jumps into the market head-first, trading real money without any formal training, it’s financial suicide. Yet, everyday, droves of retail traders do it.

For some reason, most traders don’t seem to connect the dots that in order to survive in trading and produce long-term profits, they have to have money to trade with! So, I want to help YOU, the aspiring trader, truly understand both the importance of protecting the capital in your trading account and just as importantly, HOW to go about doing so.

Capital is the price of admission, without a ticket, you can’t play.

Ever hear the saying “You’ve got to pay to play”? Well, that is pretty much true for everything, especially trading. If you don’t have any money, you can’t make any money.

Think of your trading account balance as the price of admission to the markets; a daily ticket to watch, learn and improve. If you run out of money, you can’t buy a ticket, and your learning journey and career are all but over.

Obviously, many traders run out of actual money to trade with and then do stupid things like fund their trading accounts on credit, this is simply lunacy and will dig you a financial grave faster than you can imagine. Don’t ever do this.

This leads me into my next point…

What should you be risking?

I’m not going to tell you how much to risk per trade, or what % of your account to trade, because it’s not my place do so due to the many complicated factors involved. However, I will say, in the early days of your trading career, be sure you can survive losing 50 or 100 trades and still have a very large amount of your account left. Remember, you need to survive, that is the only goal here, not profits (yet), but capital preservation at all costs. You are trying to preserve your trading capital as much as possible for as long as you can so that as you learn and grow as a trader you still have money left to trade with, to take advantage of your improving skills.

I am also going to ask you to look at your overall net worth. Look at your income vs. your monthly bills and decide how much money you actually have right now to risk, as well as how much you will invest each year from your disposable income/savings to continue your trading pursuits and learning journey.

Once you have figured out your financial situation, budget accordingly and stick to that plan and don’t deviate on a whim like a gambler. Think about what’s in your account today and what you might put in your account each month/year, if you don’t, you’re going to go broke and destroy your chances of making it. The investment into trading has to be methodical and disciplined, stick to your capital plan each month/year. Most importantly, do not commit funds to trading that you can’t afford to lose or that if lost will impact your way of life significantly, never do this, especially when you don’t totally know what you’re doing yet.

Don’t run out of bullets. Plan for the battle to last a long time.

It’s no secret that I love military metaphors to teach traders the type of mindset they need.  Those of you who follow my blog know I am a fan of the sniper trading approach, which is essentially a low-frequency, higher conviction trading style. Trading is a war against your opponent that lasts decades, so you need to take inventory, prepare and plan, and dig in for the long-term. When you have money in your account, you have ammunition to go into battle but if you are out of ammunition you obviously cannot win the battle.

Trade A Smaller Positions In The Early Days

Whatever lot size you’re trading now, even if it feels comfortable, you may want to think about reducing it by 50% or even 75% and take a step back and start doing some math…

If you lost 10 trades in a row risking what you currently are, where will you be? Will you survive, or will you nosedive? Do you have enough ammunition on reserve to make it through? Think logically here and don’t believe that you’re somehow going to be the lucky one who never experiences a drawdown, because they can and will happen to you at some point.

As discussed in my recent article on why you need wider stop losses; you can trade wide stops or tight stops, and still risk the same amount of money, it just comes down to position size. Change the contracts / lots traded and the dollar risk changes, it’s that simple.

It’s wise for any newer trader to start out risking a very small amount relative to their overall capital and then gradually increase risk over the years as their skill, confidence and trading account grows.

Trade Smarter In General

Play your ‘strong hands’ (poker metaphor) by picking the best price action pattern that you understand and have a knack of picking up on charts and trading successfully, stick with it and master it over time. Know your strength and don’t deviate from it just because you can; apply discipline.

Be on the defense not always on the offensive; play the long-game and grind it out. Don’t think there’s a shortcut (because there’s not!); you need to always be thinking of your risks and not just the rewards.

Don’t be fooled by your subconscious

So, you had a run of winning trades. Great job! But, ease up buddy, slow down and take a breath, it isn’t going to stay this easy and you better believe it. You need to prepare for that string of winners to revert to normality and don’t over expose yourself just because you’re feeling confident. View strings of winners as a “blessing” and remember that there’s a random distribution of trade results for any given trading edge (so a string of losers could be around the corner)!

Remember, the trades that seem the easiest to spot and that you have the most confidence in are the ones you need to be worried about. Often, the market is ‘setting you up’ to fail, so don’t bet big on a trade that’s giving you that over-confident feeling because those are the most dangerous ones.

I’m not saying you should over-think and over-analyze potential trades, I still want you to play the best and most obvious setups. However, I am saying that you should not double-up on those obvious looking ones just because you “feel good” about them, because remember that any trade can fail and it only takes one misplaced card to bring down the house.

Stick to your pre-defined risk parameters and when you see a quality trade setup that meets your trading plan, enter it with conviction.

Only Pick Trades Offering Sound Risk Reward.

If you want to preserve your bankroll, you need to only pick trades that offer a sound risk:reward ratio. If you aren’t sure what risk reward ratio means, check out my article on risk reward and money management.

Ideally, you will only take trades that offer a decent risk reward of 1 to 1.5 or 1 to 2 or greater, nothing less. When you start taking trades with risk rewards of 1:1 or less, it becomes incredibly hard to impossible to make money over the long-run and preserve / build your bankroll.

Don’t Risk Money On “Hero Trades”. Warning: You Will be Tempted.

There’s FAR more money to be made trading with the trend when everyone else thinks “The market can’t possibly keep moving in that direction” than there is trying to pick tops and bottoms.

Remember this: markets can go further than you think and they often will. These big moves take time to play out and many, many amateur traders will be betting against that trend the whole way up or down, thinking it will end at every swing. Hence, sometimes being contrarian is actually going with the ‘herd’ because everybody else is betting against them!

Next time you want to waste a bullet from your trading account trying to be a hero and pick the next big reversal in a one-way market, take a step back and think about if it’s worth it in the longer-term scheme of things. Your aim is to survive monetarily, not boost your ego.

Conclusion

When it comes to long-term trading success there is one contributing factor that stands head and shoulders above the rest: Capital preservation. Many traders end up blowing through so much money in their early days that by the time they know what they’re doing they are all out of trading capital to properly take advantage of their ability. Blowing through money in the early days of trading also leads many traders to simply give up citing “trading is too hard” or “impossible” before they actually know what they’re doing.

Any way you slice it, when you first start out trading real money, you need to be extra careful because the emotions are high, your hopes are high and your expectations may not be in-line with reality. You have two choices: don’t listen to the insight I’ve shared with you in today’s lesson and that I expand upon in my professional trading courses, or listen to it and implement it. There really is no in between. At the end of the day, only YOU know how much money you can afford to lose both financially and mentally and still be in the trading game long-term. Hence, it’s up to you to make the call and do what needs to be done because no one can stop you from blowing out your trading account, except you.

Please Leave A Comment Below With Your Thoughts On This Lesson…

If You Have Any Questions, Please Contact Me Here.

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About Nial Fuller

is a Professional Trader & Author who is considered ‘The Authority’ on Price Action Trading. He has a monthly readership of 250,000+ traders and has taught 20,000+ students since 2008. In 2016, Nial won the Million Dollar Trader Competition. Checkout Nial's Professional Trading Course here.
  1. Dmitriy September 16, 2019 at 1:57 pm

    Thanks a lot, Nial!
    That was a truly beautiful lesson!

    Reply
  2. Sunday September 14, 2019 at 9:53 pm

    what to know more about risk management
    if I want to risk 1$ on a pair what will be my lot size and pip value to set as a Stop loss

    Reply
  3. Zinnur June 2, 2019 at 4:34 am

    Important lesson. Thanks

    Reply
  4. Благодарность October 30, 2018 at 3:47 am

    Magnificent article

    Reply
  5. Rahmat February 26, 2018 at 7:36 pm

    Almost every articles content and language from Nial are really giving positive effects including this one.
    So thank you Nial.

    Reply
  6. Olawa February 18, 2018 at 1:01 am

    Nial is my preferred Forex mentor anyday

    Reply
  7. DERRICK February 16, 2018 at 12:54 am

    all i can say is thank you so much

    Reply
  8. Tha Mathabzo Zulu February 15, 2018 at 8:15 pm

    Thank Nial

    Reply
  9. Duncan February 15, 2018 at 6:29 pm

    Thanks Nial;

    This was a great post which actually helped me rephrase my thoughts after my losses.

    I am still not very profitable at this stage but every time I lose, I look back to see what I could have done better and learn to minimize my losses maybe exit at a small profit rather than a loss!!

    However; after having read this, I also now appreciate the fact that losses are a part of it as well and I feel less discouraged before taking the next trade than before. Things sometimes are easier said than done – true – but after reading these guidelines, I learn a lot and appreciate it heaps. I am learning a lot and the best part of it is that I am enjoying it.

    Thanks for spending the time to post such valuable guidance!

    Duncan

    Reply
  10. Peter Miller February 15, 2018 at 2:46 pm

    Another good lesson. As they say ” life is what you make it “and that goes for trading also, think before you act and know that never one day (or life is ) is the same as the last one, so treat as Nial says each trade as a new beginning. Thanks .

    Reply
  11. rudra February 15, 2018 at 6:24 am

    good one sir

    Reply
  12. Khesiwe February 15, 2018 at 2:14 am

    Excellent article pactice makes perfect I’m going to practice every advice in this article thanks Nial

    Reply
  13. Winston Roy Longbottom February 15, 2018 at 12:01 am

    Thanks Nial, I for one admit that I was influenced by previous success and could not see the next trade through that; I was brought back to reality with some quick losses, however I puuled my thoughts together and looked at my next trade with confidence and considered every possible angle before taking it and I am now back on track. This article has since reassured me of that fact and I must disregard any previous trade before attempting the next. Your articles help keep sanity in the trading game and also leads to further success. Many Thanks. Winston

    Reply
  14. farzad February 14, 2018 at 8:50 pm

    Every word in this article is like gold…

    Thanks AGAIN Nial.

    Reply
  15. Olamide February 14, 2018 at 2:03 am

    Thanks Nial. That’s reminds me of a trade some years ago before I quit trading. I bought EUR/USD on $0.05 lots with $20 risk and i made a profit of $183 on that trade so that winning recency bias got into my head and I felt overconfident, then i went ahead to trade $0.10 lots on my next two trades and I lost both. That’s how I gave back the profit I made from that EUR/USD to the market. Fear start to catch me then I reduce my lots to $0.01 which definitely reduced my profit that I would have make on some trade. Though I just came back to the market since two or three years ago that I quit but am still using demo account to test my trading strategies before trying to come back live. Thanks once more.

    Reply
  16. Wandera Moses February 13, 2018 at 8:50 pm

    Nial thx for this one also. i have improved alot in trading just by reading your articles. thx alot

    Reply
  17. ampurirag February 13, 2018 at 6:09 pm

    Excellent and timely. Thanks Nial.

    Reply
  18. Seiso February 13, 2018 at 1:44 pm

    Typical of Nial’s mail’s. I am not in anyway surprised to find this post hitting the nail on the head as it does and so timely as well. I always find Nial’s post as informing, factual and educating like this one. Thanks to Nial, from now I am no longer going to be enslaved to my last trade’s results.

    Reply
  19. Colin February 13, 2018 at 10:31 am

    Thanks for the trading insight. Particularly about training our brains to behave properly.

    Reply
  20. Hettie van der Vyver February 13, 2018 at 5:12 am

    this makes sense!!

    Reply
  21. Thoko February 13, 2018 at 5:09 am

    Well I am a true novice,I have not started trading yet. If I understand well briefly you say if one is a trader one must bury the past.That is my motto
    So I feel l Iam going to do well.

    Reply
  22. Wasantha February 13, 2018 at 4:45 am

    This article explains what happened when I first started trading forex. After reading many of Nial,s writings on the subject of trading I feel that I am expanded in my knowledge and confident about my trading decisions.I really appreciate Nial,s works,

    Reply
  23. kris February 13, 2018 at 2:59 am

    i noticed today after one loosing trade that it can’t reflect, the other running trades .
    After that i checked my emails and i saw your email as first .I have read it and then it was like you would heard what i sayd before It was simmilar to :

    If you just lost, it has no bearing on the fact that your next trade might be a winner.
    If you just won, it has no bearing on the fact that your next trade might be a loser.

    thank you for your work .
    traders mindset ..

    have a nice day.

    Reply

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