Many traders fall victim to the same mistakes and end up losing everything they worked hard to earn. But fear not, because there are simple steps you can take to avoid blowing up your account and achieve sustainable gains.
Blowing Up Your Account
1. The Gambling Mindset
First and foremost, let’s address the gambling mindset that many traders have. It’s easy to get caught up in the thrill of making big profits and taking risks, but this is a surefire way to lose it all. Trading should not be seen as a game of chance, but rather a strategic investment strategy that requires discipline and focus.
2.No Risk Management
One common mistake traders make is failing to practice proper risk management. This means not using stop losses, risking too much on a single position, and not diversifying their portfolio. Without proper risk
3. Overtrading
This is when you make too many trades, often based on emotions rather than logic, and end up losing money in the long run. To avoid overtrading, it’s essential to have a clear trading plan and stick to it. Don’t let FOMO or greed drive your decisions, but instead, focus on making smart and calculated moves.
4. Sustainable Gains
It’s crucial to focus on making sustainable gains rather than trying to get rich quick. Many traders fall into the trap of chasing after high-risk, high-reward trades, but this is not a sustainable or realistic approach. Instead, focus on building consistent gains over time.
Win 2/3, But RED on the Day
- Trade 1 $100 Gain (+10% on $1000)
- Trade 2 $150 Gain (+15% on $1000)
- Trade 3 $500 Loss (-50% on $1000)
Win 2/3, But EVEN on the Day
- Trade 1 $100 Gain (+10% on $1000)
- Trade 2 $150 Gain (+15% on $1000)
- Trade 3 $250 Loss (-25% on $1000)
Win 1/3, But GREEN on the Day
- Trade 1 $300 Gain (+30% on $1000)
- Trade 2 $100 Loss (-10% on $1000)
- Trade 3 $100 Loss (-10% on $1000)
With proper risk management, you be 1/3 wins on the day and still end green. This is achieved by taking higher Risk Reward trades where the reward is 3R (3 times higher than your risk). When trades invalidate, you take the stops quickly to reduce risk. While the trade works in your favor you maximize taking profits (letting your winners run, and cutting your losers quickly).
In the first example, one loss requires 2 - 3 wins just to break even. In the second example, the losses were managed better, but the winners are taken too quickly, thus 2 wins and 1 loss still ended up even. In the third example, the wins far outweighed the losses, thus still ending green. Following this example, if you also have a strategy that wins more than 50% of the time, your account will grow.
This can only be achieved by entering trades close to your risk area (at support) and position sizing appropriately.
Conclusion
Blowing up your trading account is a common mistake, but it doesn’t have to be your fate. By avoiding the gambling mindset, practicing proper risk management, avoiding overtrading, and focusing on sustainable gains, you can build a solid foundation for success and achieve your trading goals. So, stay disciplined and keep on trading!
