Why Should You Always Set Maximum Trading Losses?
Forex traders fail every now and then. They lose money due to the lack of experience, poor money management, and not spending enough time monitoring the foreign exchange markets for entry and exit points. Nobody wants to lose money, but it happens. Failure isn’t something to be taken lightly. If you wish to be successful in currency trading, you must be prepared to set a maximum trading loss. In other words, to have a daily max loss and don’t take more trades. A loss can easily get out of hand if it’s not controlled. To avoid this and make the most out of the trading experience, set a stop that is the maximum loss.
Understanding Maximum Loss in Forex Trading
One way to minimize risk while trading in the FX market is to set your maximum loss before you open a trading position. This represents the amount of money that you allow yourself to lose on any given day. When you hit the number in question, you stop trading currency for the day. Basically, you close out your trading positions the moment that the losses reach the predetermined level. You can limit your losses in volatile markets by moving in the opposite direction. Most importantly, you don’t set yourself up for the pain of disappointment.
3 Reasons Why You Should Set Maximum Acceptable Loss
A Single Bad Day Can Ruin Your Entire Month
What could possibly happen if you don’t set maximum trading losses? Well, your chances of making a profit are slim to none. After a few successive losses, your capital is significantly reduced and you need to have a 300% return on the next trade. You risk a high percentage of your account on a single trade in the hope that you’ll win. This is wishful thinking. Your responsibility isn’t to make a profit, but to protect what you have. You won’t make it back. It’s impossible to recover a whole month’s worth of gains in just a couple of hours. The maximum acceptable loss forces you to realize that it’s just not your day.
You Can't Predict the Foreign Exchange Market
The future can’t be predicted. Even if you have enough information, you can’t see where the prices will go. Unfortunately, the foreign exchange market isn’t predictable with science. The only thing you can do is leverage the available information and wait for one thing or the other to happen. Given that future currency prices are a mystery to the market, you can’t afford to take your chances. If you set a max loss, the securities will sell at or below the specified stop price. The maximum loss is restricted, so it doesn’t matter that the price moves higher or lower overall.
No Need to Monitor Your Trades on A Daily Basis
Whether you’re trading manually or with the help of an expert advisor, it’s essential to monitor your trading activity. This helps you improve your skills and know what is going on with your cash reserves. The only problem is that analyzing trading reports is a long and tedious task. The advantage of a maximum trading loss is that you don’t have to constantly keep an eye on how a trade is performing. You’ve set the maximum loss that you’re prepared to accept on any single trade. So, you can avoid trades where the difference between your entry level and the stop loss is higher than the maximum trading loss. If you want the utmost control, have risk management in place.
How To Set A Maximum Trading Loss
Contact your broker right away and set a max loss on your account. Once you’ve reached the limit, you can stop trading for the day. What happens is that the broker locks the account and you can’t place more trades. As mentioned earlier, you choose the amount that you’re willing to lose on a deal. There are many brokers that offer MetaTrader 5 trading platform. If you’ve signed up with such a broker, this is what you need to do to set stop loss levels:
- Identify the position you’d like to set a Stop Loss on
- Right-click and select “Modify or delete” from the menu
- Set the desired level
You can set the exact rate at which the deal automatically closes. Establishing the allowable risk threshold is the tricky part. If you set your maximum trading loss too far away, there’s the chance that you’ll lose money if the price moves in the wrong direction. Also, if you set the maximum trading loss too close, money will be taken out of the trade ahead of time. It’s up to you to assess your risk tolerance and determine where the stop loss placements will go.
Never Let Things Get Out of Control When Trading Forex
Forex traders should always limit their losses. There is no such thing as an acceptable loss. Every war comes with some kind of cost, yet that cost shouldn’t be too high. You need rules like how much you should risk. Don’t focus on the quantity of the trades, but rather on the quality. More trades don’t necessarily translate into more profits. actually, the exact opposite could be true. Tempting as it may be to place multiple trades in MT5 to take profits, don’t do it.
The bottom line is that if you want to improve and not be just another statistic, always set maximum trading losses. if you’re day trading, it’s a good idea to set your per trade loss. have a maximum level that you’re ready to lose per trade. If you don’t, you’ll only end up struggling. Risk $500 or $700 in the trade. The decision is up to you. Just don’t allow for more damages. Don’t be an out-of-control trader. When trading is driven by fear or frustration, the outcome isn’t the one expected. Know your daily/weekly/monthly loss. When your trades hit your loss limit, it’s time to call it a day.
A max loss is just what you need to set forth on the path to becoming a successful and consistent trader. That is something to keep in mind.