How to Avoid Losses in the Forex Market

I have made 17 consecutive winning trades on the forex market. How did I do it? By using common sense.

To be a succesfull forex trader, I believe it is all about gearing. Even though I get a 1:200 leverage on my $3000 account, I NEVER NOT use it. That way I can never go broke. Leverage of 100:1, 200:1, 400:1 is just crazy. They know you are going to lose, and the money is going to end up in their pockets. Don’t fall for it. Any market maker who allows you to trade 100,000 lots with a $1,000 margin does not have your best interests at heart. But there is no law against parting a fool from his money. Leverage wipes out those traders who do not respect its power.

My success has everything to do with my gearing. Gearing is your Margin Account size devided by your Lot size. In my case my Margin Account size is $3000 and my Lot size is $10 000. So i am geared 3:1. ($3 000 / $10 000 = 3%)

Say I play EUR/USD and enter the market long at 1.3100 and the market turns against me and goes down to 1.2900, I can still survive the 200 pip swing against me. All because of my gearing. Can you survive a 200 pips swing against you?

The only way you can go broke on forex is by gearing to high. And that is exactley what the brokers want you to do. Because if you are geared to high then the odds are against you and in favor of the brokers.

Let me give you an example. You start off with a $3 000 account and play $100 000 lots. Right from the start the odds are heavily against you because you are geared 30:1. You make use of 30 pip stop losses. Every time you get stopped you loose $300 (30 pips x $10 =$300). If you get stopped out four times then you have lost $1 200. Now your $3 000 account is down to $1 800. Now you decide to use a 100 pip stop loss. Very unwise because right now your gearing is 25:1 ($1 800/$100 000 = 180%). You enter the market but gets stopped out. Because you have used a 100 pip stop, you are $1 000 down. So now your account is down to $800. And your gearing is 800:1 ($ 800/$100 000 = 800%). If the market moves 80 pips against you then your account will be wiped out. So you can loose your account if the market only move 300 pips against you.

The way I trade, the market has to move 3 000 pips against me to wipe me out. Who has the best chance of surviving. The trader who only has 300 pips to play with? Or the trader who has 3 000 pips to play with? Wouldn’t you agree that the odds are in my favor.