Many people are drawn to trading because they buy into the idea that it is easy to make money online (myself included). I know many of us probably saw some pictures of a guy next to a nice car holding a phone with 10k displayed in the profits section of his MetaTrader4 app with the promise of “if I can, you can too!”
But, when you tried it for yourself you ended up losing hundreds to thousands of dollars instead of earning them.
Whether you have never traded on a live account or you’ve blown more accounts than you care to mention, following these 4 tips can help prevent you from blowing your next account.
Tip #1: Use a Tested and Profitable System
Without a successful trading system it will be impossible for you to find consistency in the markets.
A trading system is mostly mechanical in nature. It addresses how you handle risk, your entry signals, trade management, and how you will exit your position.
A trading strategy is more subjective in nature. It addresses the entry signal but often doesn’t have a clear and concise plan on how to manage the trade or exit the market.
You need to back test and forward test your system before getting involved with the live market. This will allow you to see the probabilities work in your favor over the long term, and it will help you build confidence in yourself and your ability to identify and enter high probability trades.
Use a trading system, not a trading strategy.
Tip #2: Find an Accountability Partner/Group
Chances are you’ve been trading by yourself. It’s easy to break your rules and say, ‘that doesn’t count, I was just “testing” or “playing around” with something.‘
Accountability is something most new traders completely ignore and overlook, yet this is the quickest path to growth and success.
Having someone hold you accountable will keep you from lying to yourself and help you adhere to your trading rules.
You don’t want to let your accountability partner down and be known as a person that doesn’t keep their word…right?
Your accountability partner will also be able to offer support when things get rough. It is so important to be able to honestly open up and relate to someone and to not go through this journey alone. The best partner would be someone that speaks the same trading language as you so you can also discuss trade ideas and different ways to refine your edge.
Find an accountability partner that speaks your trading language.
(For more details on the benefits of an accountability partner, check out this post from Alex)
Tip #3: Use Limits to Prevent Over-trading and Giving Back Profits
Many new traders believe they need to trade often in order to make money.
False.
You DO NOT have to trade every day to be a consistently profitable trader.
The first part of the ASFX motto is: Do Less.
Instead of taking every setup you identify, turn your focus to only the highest probability setups.
Setting limits helps to ensure that you only take the best trades for your system. You can set limits in terms of trading hours, percentage gained or lost, or number of trades taken per day.
Many traders in the ASFX community combine 2 of these criteria to maximize their profitability. I set limits on my trading by restricting my trading hours and limiting myself to no more than 2% in losses on any given day or 5% in losses for the week.
Use limits to set boundaries around your trading.
Tip #4 Use a Regulated Broker
Another huge mistake many new traders make is over-leveraging their account. 1:500 leverage may seem alluring, but it’s an easy way to blow your account quickly. Regulated brokers tend to have lower leverage than unregulated brokers, and they limit the amount of your account you can risk per trade.
This is the easiest way to force yourself to preserve your capital and prevent a blown account.
The regulated brokers force you to treat your trading like a business and help you stay in the game over the long-term.
The unregulated brokers know you will blow your account and don’t care about your trading business.
There are not any agencies or laws to prevent unregulated brokers from committing fraud or to ensure they return your money in the case that they shut down.
So let me ask you, ‘if you plan on treating this like a business, and you want it to be your tool to achieve financial freedom, do you really want to take the risk with a broker that may never pay you out?’
Hopefully not.
Use a regulated broker to respect and protect your capital.
Now you have actionable steps you can take to help prevent your next blown account.
The hardest step will be maintaining the self-discipline, which will be made easier with an accountability partner.
Including these tips in your trading habits will bring you one step closer to becoming a consistently profitable trader.
Check out these videos with two of our ASFX Coaches that have never blown an account!