If you are a beginner in the wonderful world of charts, patterns and indicators, this post is for you...
Almost all traders have on day faced an account crash and anyone knows that it is a damn bad moment to go through.
My goal here is to identify what is the main reason leading to this morbid situation that make us crash our accounts...and provide some tips to avoid being in panic when the margin call happens.
The leverage and margin level.
The trading world is seen as an eldorado for most of people, especially because it seems so easy to make much money very quickly. It is also a path to financial independency which is a dream for many people. Working from home or simply working with only a smartphone and make money like that. It seems so nice.
Let's be clear, If the leverage did not exist we would not be here on Tradingview. If trading knows as much succes, it is also because we can invest much more than we have in fact. With $1,000, we are able to invest up to $500,000 in the market... from our smartphone... Simply insane.
Difficult to stay cold being aware of that.
Who has never been in margin call here? This situation should never happen. If so, then your trading behavior is at risk and you will crash your account sooner or later.
My solution: Always respect the 10% rule. Your overall margin including all opened position should never exceed 10% of your account.
If your capital is $1,000 then your max margin would be $100. Even there it is only for agressive traders.
Why the 10% rule can help you to succeed?
In fact, you can use it as psychological barrier.
As an example, you can face the case where you have a position in loss. I identify 3 main situations:
A) You position is in an important loss. You are tempted to average down the entry price of the position by adding a new one on the same pair. Clearly the badest behavior. With the max margin at 10% you cannot add multiple positions without breaking the rule. It is your alert.
B) You can also let the position run in loss without doing anything. Your stop loss? Psychologically, you are not able to handle such a loss so you pray for the market to reverse. It is possible depending of the fundamentals and technical configuration, if a huge support is broken, better worth closing the position. Letting the position run is risky but clearly much more acceptable than the A situation.
C) Your position is in loss but you use a stop loss. The stop is hit but you accept this loss and look for a better opportunity to enter in the market again. Ideally on a support or a resistance.
In definitive, being in margin call should warn you that your trading behavior is dangerous in a medium to long run. The probability for you to crash your acccount sooner or later is damn high.
Almost all traders have on day faced an account crash and anyone knows that it is a damn bad moment to go through.
My goal here is to identify what is the main reason leading to this morbid situation that make us crash our accounts...and provide some tips to avoid being in panic when the margin call happens.
The leverage and margin level.
The trading world is seen as an eldorado for most of people, especially because it seems so easy to make much money very quickly. It is also a path to financial independency which is a dream for many people. Working from home or simply working with only a smartphone and make money like that. It seems so nice.
Let's be clear, If the leverage did not exist we would not be here on Tradingview. If trading knows as much succes, it is also because we can invest much more than we have in fact. With $1,000, we are able to invest up to $500,000 in the market... from our smartphone... Simply insane.
Difficult to stay cold being aware of that.
Who has never been in margin call here? This situation should never happen. If so, then your trading behavior is at risk and you will crash your account sooner or later.
My solution: Always respect the 10% rule. Your overall margin including all opened position should never exceed 10% of your account.
If your capital is $1,000 then your max margin would be $100. Even there it is only for agressive traders.
Why the 10% rule can help you to succeed?
In fact, you can use it as psychological barrier.
As an example, you can face the case where you have a position in loss. I identify 3 main situations:
A) You position is in an important loss. You are tempted to average down the entry price of the position by adding a new one on the same pair. Clearly the badest behavior. With the max margin at 10% you cannot add multiple positions without breaking the rule. It is your alert.
B) You can also let the position run in loss without doing anything. Your stop loss? Psychologically, you are not able to handle such a loss so you pray for the market to reverse. It is possible depending of the fundamentals and technical configuration, if a huge support is broken, better worth closing the position. Letting the position run is risky but clearly much more acceptable than the A situation.
C) Your position is in loss but you use a stop loss. The stop is hit but you accept this loss and look for a better opportunity to enter in the market again. Ideally on a support or a resistance.
In definitive, being in margin call should warn you that your trading behavior is dangerous in a medium to long run. The probability for you to crash your acccount sooner or later is damn high.