Growing your account sometimes looks impossible when several positions hit the stop loss at the same time. You trade patiently and grow your account, but suddenly some losing positions wipe out the result of several days or weeks of trading. If that sounds like you, then you have to consider some important factors.
The first thing you have to know is that the problem is from your side, not from the markets. If you lose 40% of your account balance within a few days, then you are not trading properly and there are some serious problems in your trading and money management style.
You are lucky if you have experienced some big drawdowns in your demo account or your small live account now. This makes you think seriously about this problem and find a solution before you start live trading, or before your current live account becomes too big.
Fortunately, there are some good solutions for this problem.
First, you have to learn to limit your losses and keep them small using reasonable and proper stop loss orders. Those traders who are after taking small profits while having wide stop loss orders (scalping), can never grow their accounts, because just one losing position can wipe out the result of several winning positions.
You have to learn to have small losses and big gains. Your trading system should be able to offer proper levels for the stop loss orders, and at the same time, you should be able to let your profit run.
This is what you read almost on all Forex related sites. They all repeat this over and over: Limit your loss and let your profit run!
The problem is I have not seen that any of them explains how to limit your losses and let your profit run. Many of them say never go for less than 1:5 risk/reward positions. It means your target has to be at least 5 times larger than your stop loss. This is really good to make a profit which is 5 times larger than the probable loss. But how can we do that?
We cannot make our stop loss orders tighter than what I explained recently in this article: Following the General Stop Loss Rule in Forex Trading
The reason is that tighter stop loss orders can cause our positions to be closed because of the markets normal fluctuations while our positions are correct. We always have to give enough room to the price fluctuation, no matter what trading system we follow.
So, we cannot achieve 1:5 R/R positions through having tighter stop loss orders.
Therefore, the only way that we have is having wider take profit orders.
Yes, that is the solution, but the problem is, allowing the profit to run and maximizing the profit is even harder and more technical than locating the strong trade setups and differentiating them from the weak ones.
Novice traders have problems in locating the strong setups. Then how they are going to maximize their profit which is even harder and more technical?
To maximize your profit, you need more experience. The more you trade, the more experienced you become in taking better positions and maximizing your profit.
But, does it mean that novice traders have to forget about maximizing their profit, and so, have big drawdowns every now and then? Does it means that they will not be able to grow their accounts consistently because of the periodic big losses that wipe out the profits every a few weeks?
You will learn to maximize your profit, but at the meantime that you are mastering your trading system and you want to become a consistently profitable demo trader first, you can follow the solutions I gave you in one of my most recent articles: A Profitable Forex Trading Strategy for Novice Forex Traders
An important tip that I want to give you in this article is about the number of the positions you take. If you use this tip along with the solutions I gave you in the above article, you will never experience any big drawdown in your account, and you can grow your account slowly but surely.
Maybe you have already noted that sometimes you make winning positions one after another for several days or even weeks. But suddenly the markets behavior changes and your stop loss gets hit even when you take the too strong 100 score setups. This repeats periodically and the Forex traders who are not aware of this will have some big drawdowns every now and then. It makes them think it is impossible to grow an account or make profit consistently. But, there is a very simple solution for this important problem.
As long as you have not become able to maximize your profit and – for example – take 1:5 or 1:10 positions, you have to be careful about the number of positions you take. One day you take three 1:1 positions and all of them hit the target. But the next week you take four 1:1 positions and they all hit the stop loss. So, you lose even more than the profit you had made.
If you notice, you will see that Forex market behaves like that all the time. Sometimes all positions and trade setups hit the target, and sometimes all of them hit the stop loss. The reason is that all currency pairs are somehow correlated to each other. Some are too correlated, while the others are less correlated. But in general almost all currency pairs are correlated to each other somehow. Just the correlation degree is different.
Therefore, sometimes something happens behind the scene that causes all markets to behave insane. They form too strong trade setups, but then they follow the opposite direction. A good Forex trader should save himself from getting trapped. Although you can be a novice trader who has not yet learned to maximize his profit and take 1:5 or 1:10 positions, and you are happy with 1:1 positions for now, still you can stay away from the big drawdowns by taking only one position at a time.
Every now and then, it is one currency’s turn to form strong trade setups on the related currency pairs. It can be CHF cross currency pairs this week, CAD currency pairs the next week, and NZD or AUD currency pairs the next month.
When the currency pairs of one special currency start forming trade setups, you have to take only one of them that looks stronger than the others. If you take all of them, chances are they all hit the target and you make a lot of profit, but keep in mind that you are doubling or tripling your risk when you take all the trade setups that the too correlated currency pairs form. So, if they don’t behave according to the trade setup they have formed, you will lose a lot, and your account balance goes down awfully.
For example when CAD/CHF, AUD/CHF, NZD/CHF and USD/CHF form trade setups at the same time, you have to take only the one that looks stronger, and forget about the rest. Yes, it is possible that the other setups behave better than the one you take, but this is what you never know in advance. The trade setup that is already formed on the chart is all you have to decide based on. The rest is not under your control.
This is what even the experienced traders who have learned to maximize their profit do. Although they achieve 1:10 or even 1:15 positions sometimes, they take only one trade setup at a time when several setups are formed by the too correlated currency pairs, or even currency pairs with a weak correlation.
Even you have to be careful when several correlated and non-correlated currency pairs form strong trade setups at the same time. The reason why they are doing so can be hidden to you, but whatever it is, you have to be careful not to amplify your risk by taking all those setups. You have to choose one of them that looks better and stronger and has less or no negative points compared to the others. If none of them look strong and safe, then stay away from them. But keep in mind that you should not blame yourself if they moved accordingly while you were out. This is part of the game and you will experience it a lot. It is normal and you have to get used to it. You cannot ride all the markets movements, and not all trade setupsmake money for you.
Trading is not what 99% of traders think.
Stop Loss Is the Key to Grow Your Account
I have always recommended you to take the too strong trade setups and avoid the weak ones. However, even if some traders still are not good in taking the too strong setups, and even if they take only 1:1 positions, but at the same time they use a reasonable and proper stop loss for all positions they take, they not only won’t wipe out their accounts, but they can even grow them slowly.
And those traders who are good enough in taking the too strong trade setups, and have become skilled enough to maximize their profit and achieve 1:5 or even 1:10 positions, but don’t set a reasonable and proper stop loss, or if they do, they widen the stop loss when it is about to be triggered, will wipe out their accounts sooner than later. Guaranteed!
There is always at least one good solution for each problem. In case of Forex trading, I have given you at least one good and perfect solution for any obstacle you will be faced with, and I showed you some good ways to become a consistently profitable Forex trader, risk free or with the lowest possible risk. You just need to follow what you read and learned here.
Good luck 
