Attention to this example:
Suppose you have $ 100,000 and lose $ 50, 000. Lost 50% of your account.
What percentage of that $ 50,000 should do to regain $ 100,000?
It is 50% .... you have to do 100% of your $ 50,000 back to the original $ 100,000.
This is called reduction.
In this case we have a reduction of 50%.
The point of this little illustration is, it is very easy to lose money, but very difficult to recover.
We know you think it is impossible to lose 50% of total bill in a single operation. But what if you lose money in 3, 4 or 10 trades in a row?
Assuming you have a good operating system, pay attention to this example:
In foreign exchange transactions are always looking for any advantage. That is the reason why that operators develop systems. A system with a 70% profit sounds like a great system.
But just because your system gives you profit by 70% of the time, means that for every 100 trades you open, you will win in 7 of 10 of them?
Losing Streak
Not necessarily! How will you know which 70 of those 100 trades are winners?
You do not. You can lose the first 30 operations and win the remaining 70. That gives you a 70% return. But you should ask why keep at it if I lost 30 operations in a row?
This is the reason why the importance of money management. No matter what system you use, you can eventually have a bad run. Even professional poker players who live the game, go through terrible bouts of losses and still end up with profits.
The reason is that good poker players have money management rules because they know they will not win every tournament I play. Only risk a small percentage of their accounts in order to survive the bad times.
This is what you also should do as a Forex currency trader. Risking only a small percentage of the account in order to survive the bad times. Remember that if you practice strict rules for handling money, you will become the long-term casino always win ...!
Let us enlighten happens when you correctly rules for handling money and when not ...
