So You've Blown Up Your Account A Bunch - Here's Why It's A Good Sign


NOT UNCOMMON - Here's a little fact you might not know. You are not alone! You have been drawn to markets and have opened up an account which you have proceeded to blow up many times. So should you pack it in and throw in the towel? Absolutely not! You may not know it, but the fact that you've blown up is actually a good sign. Why? Well because one of the most important things you need to trade markets is an appetite for risk. Many people out there have no appetite for taking risk and would never be able to succeed trading markets. But you already have what it takes. You are drawn to the market and enjoy the thrill of speculating and rush of being right. The problem isn't that you have the wrong disposition for trading. It's simply that you need to tone down the risk taking. You are probably taking on risk that is somewhere between the realm of unreal and ridiculous and there aren't too many out there (if any - and only by sheer luck then) that can have any success in this realm.

YOU'VE ALREADY GOT IT - So the good news for you is that your path to success requires you to manage something you already have. You need to hone your existing risk taking capabilities and notch them down dramatically to levels where you are still taking plenty of risk, but not at risk for blowing up with each and every trade! Late last year I recommended taking the un-leveraged challenge. That is to say, I recommended anyone struggling to succeed in trading should take position sizes no larger than their account size. This way, any trade taken would be a trade that would involve very little stress and that would actually let you think clearly and focus on the trade itself rather than the dollars and cents behind the trade. On an un-leveraged basis, generating an annual return of 10-20% is completely doable. So think what you could do if you used just a little leverage. This means that if you traded with just 5X leverage, generating an annual return of 100% would not be unrealistic at all.

Blowing up your trading account ain't all bad. Via @joelkruger

THE SKINNY - As an example, say you have $10,000 in your account. If you were trading EURUSD all year and traded position sizes of 10k, you could realistically generate a return of $2000 on the $10,000. In this scenario, if your maximum risk per trade was 100 points (i.e. long EURUSD 1.1700, stop 1.1600), you would be risking $100 per trade or 1% of total equity. And in this scenario it would be very hard to blow up. Wouldn't ya say? So even if you wanted to get really aggressive (still way less aggressive than you have been trading), you could trade position sizes 5X the amount of your account. So with a $10,000 account, you would be taking 50k EURUSD positions and applying the same scenario above, potentially targeting 5X return = 20%(5) = 100%! And in this scenario, your max risk per trade would be $500 per trade or 5% of total equity. Even in this wilder scenario, it would be very hard to blow up. And in this scenario, there is plenty of opportunity to make a lot of money. So in the end, just give yourself a chance! We all have weaknesses in life and the secret is trying to recognize those weaknesses and turn them into strengths. If you can relate to what I'm saying, I think you're already on your way to maybe not blowing up this time round.


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