The international economy is known for moving billions to trillions of dollars every single day. This isn’t a surprise when hundreds of nations collectively work together to ensure that the economy develops, which can help raise the standard of living. Ever since ancient times, trading has been known for being one of the most lucrative industries that people can easily get into if they have the capital and the drive to make even more money. Not only is trading a profitable venture, but this is also a great way of building bridges with other traders from different cultures.
Until the present moment, trading is still one of the best ways to make millions of dollars if you know what you are doing. There is a myriad of markets that you can break into, which include the stock market and the foreign exchange market, which usually deals with the fluctuation of exchange rates between different international currencies.
However, forex trading is also a high-risk and high-reward profession, and many individuals get into it thinking that they can make easy money. In reality, being a full-time (or part-time) trader will take a good deal of time, effort, and commitment. Not only will you need to constantly monitor the market to get the most out of your investments, but you’ll also need to learn how the market goes.
This is one of the reasons why the foreign exchange market has a high learning curve. Sometimes, it will take years before you know understand how the marketplace reacts to international economic news and politics.
Contrary to what most people think, the foreign exchange market doesn’t just decide if it will go in an uptick or dip for no reason; there is a pattern to the chaos. Even though much of the forex market will change at a moment’s notice, you can still make a profit even if you might be at a “loss.”
One of the many patterns you’ll need to look out for in the forex market is the drawdown. But what is it? How do you cushion your losses and make sure that you have more profits? Here’s what you’ll need to know.
What Is a Drawdown?
But before we discuss some ways of making a good profit in the foreign exchange market while minimizing losses, we’ll need to discuss what a drawdown is.
Basically, drawdowns are considered one of the largest loss potentials investors can have when the market dips. The good news here is that drawdowns are actually a normal occurrence in the forex market. Many traders will usually experience this when something “historic” is happening that could affect the market. In most cases, swing traders will experience this, especially when the market suddenly shifts in the trend.
Many individuals in the trading community will usually suffer losses when deciding that the best solution would be to panic sell. In reality, the best course of action is to remain patient. If a trader is disciplined enough, they will get much of their investments back.
Sure, you might be able to get some profit when the market starts going on an upward trend again. But what if it doesn’t? What if you’re facing down a total of around 10 to 15 consecutive red candles from a market that keeps dipping, and now you’re forced to add more funds to ensure that you have more margins for trading? Well, here’s what you can do.
- When you’re on the losing end of a trade, the best thing you can do is be more cautious with your trades, including lowering your trading size to 50%.
- If you doubt what you have to do with trading, you can always hire a professional to do it for you. Luckily, some forex brokers accept US clients who can oversee your open trades for you. This is a great way of taking off a bit of load behind your back and getting help from vetted experts known for expertly handling trading accounts and reading the market.
- Although you might be tempted to close trades that are already causing a lot of damage to your balance, it’s still important to stay disciplined. Who knows? The market might turn around.
- Read the market and business news. Most international business news will affect how the market is doing.
Trading in the foreign exchange market will take a great deal of patience, discipline, and commitment. There’s really no be-all-end-all solution to surviving drawdowns besides being patient and knowing where the market is going. In some cases, people will make split-second decisions based on what they see in the charts, but it’s always better to keep a cool head and trade using data and information rather than emotions.