Blowing A Trading Account Is Not What It Sounds Like
And no, not in that way either! A lot of people reading this have probably already blown an account. Some of you haven’t and still need to be deflowered, and that’s okay. Whatever your situation is, you are welcome here.
Blowing up is a reality that we face as traders. It comes with the RISK (which by definition means there is a chance that something could go wrong), and sometimes things do go wrong…horribly wrong, and you lose your money… ALL of your money.
Although some accounts may bleed slowly over time, blowing up usually happens quickly, leaving you in a flushed and confused state of disbelief. You have just witnessed the wrath of the financial markets.
Typically blowing up an account happens when people have over-leveraged on a position (learn about leverage here). Maybe you had no idea how to calculate risk yet? And you put on a position that gave a margin call almost the second you pressed that buy button. Your equity flashed red, and your broker closed all of your trades automatically.
After the dust settles, you wonder where all of your money went. A single trade wiped out your entire capital. Starting out like this is forgivable since you didn’t know what you were doing yet. Time to study right?
But maybe that’s not you, maybe you were well in on your trading journey when it suddenly hit you…BOOM! The perfect trade set up. This was the one! You could see the mansion and the cars. You could feel it in your bones! This trade was a certainty. So you loaded up on the trade, as big as you can get it because there’s just no way you’re going to lose this trade.
The drawdown begins… as price moves against you, your equity looks horrible, you’re sweating bullets. But you’re definitely right on this trade and this is just a temporary move against you, so you move your stop-loss and give the market “room to breathe” (more like room to bleed).
Price keeps going against you until you’re close to tears and are about to cut your losses and call it quits!… and it finally lets up. You breathe because price is recovering, and you think about letting it get back to break-even to get out of your position. And after some time… it continues its attack against you!
At this point, you’re an emotional mess. After all is said and done, one trade took all of your money. This is not as forgivable. Do not EVER let a small loss into a big loss. That is a habit that kills even the most promising traders.
But that’s not you. You’re smarter than that. You managed your risk well. You took your trades objectively, and somehow, someway, you just kept losing. Drawdown period after drawdown period, you could not catch a break, and eventually, your account died in the most painful way…death by 1000 cuts.
Lessons from Blowing up
Truthfully, all the sins above are forgivable when starting out in the Forex market even if you went through all of them because they all hold different lessons. Losing money in the financial markets is normal, but not having educated yourself before getting involved in the market almost guarantees your loss.
You are better off getting yourself something nice. The “tuition” losses come from educating yourself in the market. “Risk comes from not knowing what you are doing.”
Don’t bet the farm, especially if you can’t afford to. I’m a big advocate for not trading with money you can’t afford to lose, and all the more so for people with responsibilities and families to provide for.
Your risk appetite needs to simmer way as a new Forex trader. As you get better at your craft, you’ll make mature decisions about that, but in the learning stages, controlling your risk is vital.
The market knows not of your family and shows no mercy. Respect the chance that you take every time you put a trade on. Everything can be pointing to a certain probability but at the end of the day, all it is a PROBABILITY. Nothing is certain in this game. Be wary of people who make it seem that way.
When you’ve finally gotten down to mastering yourself and removing bad habits from your trading, and you’re still losing money, it’s time to rethink your approach and make sure you actually have an edge.
It’s possible to be disciplined and still be a losing trader simply because the way you are trading has a negative expectancy (which means you have no edge). So study the charts until you find a repeatable pattern that has a positive expectancy.
Don’t bet the farm.
Don’t lose your shirt.
Cut the L.
Keep the W.
Blown Accounts FAQ
A percentage of total capital allocated to a position.
Blowing an account in trading means you have lost all of your trading capital.
Blowing a trading account is almost always the result of improper lot sizes. Taking too much risk.