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It doesn't take long to realize that trading currencies is an inherently volatile business. So many times you'll be looking at a nice paper profit, and then within a few minutes you are staring at a loss. That's trading - there are good days and there are not so good days. But the prudent trader always asks themselves what's the most they can expect to lose if any particular trade goes bad. The answer to this question forms a core part of your forex trading system, and it's what we call drawdown. A drawdown is the total of the losses in a trader's account after a series of losing trades. For example, let's say you've been having a good run of profits but your winning streak comes to an end. Over a couple of weeks you are now looking at several losses. You're concerned about how many losses you will have before the profits start again, and what kind of drawdown you can expect based on what's happened in the past with your trading system. This is why back testing your trading system using a demo trading account before ever considering trading a live account is so important. Just the fact that you've tested things in a demo account is a great way to make sure the system you are using is likely to work in most of the market conditions you are likely to encounter. Using this risk-free testing environment is going to let you have enough confidence in your system to enter and exit trades without hesitating. You are never going to become a profitable trader if you panic every time a trade signal is generated because you don't have confidence that your trading system is going to work. Forex trading involves risks - they are always present regardless of what trading strategy you decide to use. And when there are risks, there are going to be losses. Professional traders know that losses are unavoidable, but they can be mitigated. This is the reason back testing your system is so important. When losses occur they can be extremely frustrating and expensive, especially if they go uncontrolled and unchecked. That's why it's important that you can trust your forex system and follow the trade signals it gives you. If you do, you'll have a much better chance of having a long, profitable career in the forex market. Learn more about trading the forex market profitably using the Complete Currency Trader system here. Then visit our site and read more of our blog posts that help traders make the most of every move in the market.
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