How to overcome the fear of a deposit drawdown?
Among all the emotions during Forex trading , the fear of losing a deposit prevails most of all, which entails self-doubt, and as a result, the absence of a positive result. This is the psychology of Forex, and traders are no longer afraid of even losses, as you know, losses are the same integral part of trading as profit, but a steadily growing drawdown of the balance. This is usually expressed as a series of losing trades, and it is absolutely not important if the trading strategy was only profitable before. A reassessment of the current situation occurs in the trader’s mind. He believes that if he receives from three or more unprofitable transactions, then such a trading system is imperfect and will soon lead to the loss of the deposit. And then the trader starts looking for the Grail- an ideal trading system that brings only profit and has absolutely no losses. Years pass in this way, the trader filters out one after another strategies that could be successful in the future, but due to several unprofitable transactions were excluded from the portfolio of trading systems. At the same time, uncertainty continues to grow, which turns into a state of fear of a drawdown and a possible loss of the deposit. The number of such traders is steadily growing, so we decided to tell you about the main methods of dealing with the fear of a deposit drawdown.
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Reasons for fear of a deposit drawdown
Before proceeding to the description of methods of dealing with the fear of a deposit drawdown, it is necessary to understand the reasons for its appearance. It was noticed that traders are afraid of a drawdown not only when trading on real accounts, but also during training on a demo account., although there was no loss of real money. What caused this fear? Firstly, the reason for this is the state of dissatisfaction, both with the trading system in particular, and with itself in general. The trader begins to be tormented by the questions why the loss occurred, what he made a mistake, whether this is an imperfection of the trading system, or is it his own mistake. Second, a series of losses is a waste of time, which is even more valuable than money. The trader believes that the wrong trading system may have been chosen, he starts looking for an “ideal” strategy, which takes even more time to find. Finally, the drawdown of the deposit affects the emotional state of the trader. Especially, this applies to those traders who cannot afford large investments, and each unprofitable trade hits the pocket, which cannot but affect the psychological state and health of the trader. All these reasons together lead to the appearance of fear of a drawdown of the deposit, due to which the trader cannot successfully trade, even if he hasprofitable strategy . To eradicate the feeling of fear in yourself, we offer the following effective methods.
1. How to lose on Forex?
Have you ever tried to lose on Forex on purpose? Believe me, this is as difficult as trading with a plus. Open a demo account, find a trading system that you think is a drain, and trade it, strictly following the rules and observing money management . Use fixed stop losses and take profits , trade on one currency pair , do not keep more than one trade open, and use the minimum lot size. So that trading does not take you a lot of time, trade on daily chartsby opening a trade once a day when a signal appears. After a few days, you will be convinced that you will not be able to drain the deposit in a couple of transactions. Most likely, you will slowly drain the deposit, while profitable trades are not excluded. This technique is very effective as it will teach you to be easy about drawdowns on your account. Applying competent Forex money management with fixed stops, and strictly following the rules of the trading system, you will learn not to notice the current drawdown, since you will know that the risk of losing your deposit for several transactions in a row is practically reduced to zero.
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2. Positive Risk to Reward Ratio
Experienced traders advise that the stop loss should be at least three times less than the take profit. This rule allows you to stay in the black even in the event of a prolonged drawdown. Let’s imagine that the risk to reward ratio is 1 to 3. For example, 10 trades were closed, of which 3 trades were closed with a profit, and 7 trades – with a loss. Let’s say the stop loss is 100 points, and the take profit is 300 points, respectively. Then the total profit will be equal to 3 × 300 – 7 × 100 = 900 – 700 = 200 points. Thus, despite 7 losing trades out of 10, we were able to earn 200 points of profit. Even Alexander Elder, a well-known psychologist and trader, once said that you should not get upset about a losing deal, even if there is more than one. You need to look at the grand total for the reporting period – month, quarter or year. Only then can we conclude
3. There is no good profit without risk!
There is another effective technique that may seem unnecessarily risky to some traders, but it helps to get used to the account drawdown, since it is impossible to make a good profit without it. This is the so-called order grid , which implies opening a large number of orders and closing at the total take profit. According to this strategy, the drawdown of the deposit can reach a critical level, but in the event of a rollback, the profit on it will be quite tangible. By trading this strategy on a cent account , you will get so used to drawdowns that you will no longer notice them. Read more about this strategy here .
4. Analysis of Forex trading
Let’s describe another method that helps to overcome the fear of drawdown. It consists in keeping a trader’s diary , in which you need to record all transactions, indicating the reason for entering (signals of the trading system, intuition, forecast, etc.), the result of the transaction (profit or loss), and also why the transaction was closed (stop -loss, take-profit, transfer to breakeven , appearance of a reverse signal, news release, closing a deal manually). At the end of the week or month, you need to analyze Forex trading, which will help you identify the reasons for the deposit drawdown or lost profits. This way you will not only learn to treat the drawdown of a deposit differently, but also improve your trading system and self-discipline.
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5. How to trade Forex profitably?
Let’s summarize how to overcome fear of drawdown and learn how to trade profitably on Forex. To do this, you need to follow the following guidelines:
- Find a profitable strategy that will not take much time to analyze;
- Write the rules of the trading system and strictly follow them without changing anything;
- Follow the rules of money management;
- Do not sit around the clock in front of the trading terminal , but open it only if you need to make an entry or check the current position;
- All free time from trade to devote to family, leisure or hobby;
- Analyze Forex trading regularly.
By following these simple recommendations and effective techniques for overcoming the fear of a deposit drawdown, you will learn how to trade profitably on Forex and raise your self-esteem.