When i blew up my first trading account, the first thing i did was to google this; "how to recover after blowing up a trading account"! Interestingly though, apart from a few videos and some general articles, I didn’t find anything that could really help me deal with this new reality and so i went on to blow a couple of more accounts before i finally figured out what the real problem was; "ME"!!
I have come across many newbie traders, who have blown up their forex trading accounts for the very first time, they are crying and looking for a holy grail system to start over, recover the money they lost and then go on to make millions from the financial markets, buy a Lamborghini and live the life their dreams somewhere in a penthouse with a beach just around the corner, eating grilled fish and drinking cocktails.
But what ends up happening is that they fall into the hands of scammers, that are in abundant supply nowadays just waiting to pounce on desperate traders. These will lead you to lose more money and before you know it, you have lost all your money, your friends' money and you are at the brink of bankruptcy.
So, instead of becoming desperate and running around like a headless chicken, keep in mind that blowing up an account is a lot more common than you think. You’ve probably heard of the saying that 95% of traders fail in their first year. As much as this may sound cliche, it's sad to say, it’s most likely true. I have blown up a fair share of accounts, committing all the cardinal trading sins you can think of. So, I am qualified to say that; "blowing up an account is a lot more common than you think".
Here is how most accounts get blow:
1. Greed/looking for quick gains (imposing your will on the markets/taking shortcuts in the learning process)
2. Lack of discipline (failure to treat trading as a business/a career and failure to journal trades)
3. Buying signals/Copying trades from amateur traders/gurus/influencers
4. Not following a game plan (jumping from strategy to strategy looking for the holy grail system)
5. Revenge trading (doubling down/adding to losing trades/trying to recover losses quicly)
6. Over-leveraging (this is perhaps the biggest killer of all)
These are the common causes of the dreaded margin call, and if you are an active trader, i believe you can relate. However, just to cheer you up, some of the best traders in the world have hit rock bottom and come back to become consistently profitable traders.
So do not despair, IT IS POSSIBLE TO BOUNCE BACK.
Now, before you curse the forex gods and ruin your karma forever, allow me to share with you 5 things that will help you get back on the right track.
1. Embrace your losses and know that losing trades is part of profitable trading
The first positive step towards recovery is accepting that you blew up an account or accounts if its not your first. And the worst mistake you can ever make is trying to avoid losses completely. So DO NOT try to avoid losses; embrace them.
And when you lose trades do not allow the negativity to sink in too deep because this will cause you believe that you will never be good enough to be consistently profitable. Successful traders push through and understand that there are risks involved in trading and the only way to profit from the markets is to navigate the stormy waters.
Additionally, it helps to remember that successful traders know that, where as blowing up an account is not desirable, it is certainly a reality that can happen to any trader no matter how good they are.
So instead of moping around and doubting yourself, you should look at it as an opportunity to learn, grow, and improve as a trader.
2. Find out what went wrong (review your failure)
So now that you have already faced the reality that you’ve lost your hard earned money or somebody else's money, it’s time for you to ask yourself, “Where did I go wrong?”
You will most probably find the answer in your trading journal, but wait! Of course you probably don't have one as mentioned above!! That means that you were not disciplined enough to document the details of every single trade you took.
Were you risking way too much/over leveraging? Did you execute your trades according to your trading plan? Do you still think your trading system is right for you? Take a look at what you were doing, examine any change in your trading style, and see what you could’ve done differently.
Personally, i discovered that most of my bad decisions were driven by emotions and so i decided to reduce my involvement by partially automating my trading. I coded my strategy and started trading it like a religion following very simple rules. I stopped thinking about my trades before, during and after taking them based on the trading plan and strategy rules. Only then did I become profitable.
3. Open a micro account and start trading micro lots
I don't believe in going back to demo trading after losing money trading a live account because even though it sounds like a good idea, it is certainly not! Believe me when i tell you that it does not feel the same and your fears will kick right back in when you get back to trading a live account and you will mess up!! This is why i recommend downgrading your trading to a micro account so that you continue to risk real money and train yourself to be disciplined with small amounts of money because if you can earn 10% gains on your micro account, you can certainly do it on a bigger account, and nothing will change as far as your emotional state and behaviour while you trade, which is not the case when you go back to demo trading.
When you demo-flex, you keep telling yourself one thing but subconsciously you know that you are not risking real money and your confidence will be superficial.
So DO NOT go back to demo trading!!
Remember that the market humbles everyone at some point in time, no matter who they are. Heck, even the pros don’t just dive head-first back into the markets, so start again with baby pips but on a real account - I can't stress this enough!
A smart and sensible trader knows that he will need to build his confidence before he starts risking large sums of his hard-earned money in the unforgiving world of forex trading again, so slow down and learn how to trade better.
4. Find a professional mentor or enrol for a course at a private trading floor where such courses are offered
Now I have to caution you to be careful here because there are literally thousands of "professionals/gurus" nowadays offering all sorts of services using screenshots of all shapes and sizes with unrealistic promises!!
DO NOT fall victim to scam artists! It is easy to identify professional traders if you are keen to do so. Take your time, do your research and find yourself a professional mentor. If you are in france, I will recommend Krechendo Trading in Paris.
5. Open a new account and start trading afresh
I cannot tell you how long it will take you to stop trading micro lots but when the time is right, you will feel that you’re ready to go standard. So, open another account with the amount of money you are willing to lose. and I have to stress this; only trade money that you are willing to lose!! Remember, there are no guarantees in trading no-matter how good you think you have become.
This time around, make sure that you stick to your trading plan like a religion! You may not see your profits build up right away, but being a disciplined trader is a major victory. Over time, you will see yourself improving and the bottom line will speak for itself.
In conclusion, I will tell you this; Do not despair simply because you blew up an account. If you don’t believe in yourself, nobody else will. It is up to you to pick yourself up and keep moving forward. In other wards, "FAIL FORWAD".