Quote:
Originally Posted by copla  Dave, no offense meant here at all, but that you're looking at it from the wrong perspective when you talk about people losing lots of money first. You have to go into it assuming that you will lose ALL of your starting RISK capital. The way I see it, your first trading balance is tuition in the School of Consistent Trading. If you lose it all, congratulations, you've paid your tuition! |
What copla describes here is one of the generally accepted pieces of 'wisdom' that you hear as you study and learn to become successful as a trader. (Don't worry copla I'm not picking on you for having mentioned this, I just have a slightly different take on it).
Take a second and step back to think who might have come up with such a statement: that you should expect to lose your initial investment (and maybe the second and third rounds investments too) as the small price to pay on the road to becoming a great money maker. Could it have been a broker perchance? It costs a fortune to become a doctor, why shouldn't it cost a fortune to become a successful trader?
The way I see it, you need to do everything in your power to make sure you don't lose your initial capital investment, ever. If you lose it all once, you'll have broken one of the cardinal rules that should be part of your trading plan: preserve your capital.
If you feel reckless enough that you blow it all, then either stick with a demo account until you can overcome that feeling, or limit yourself in some way so that you have a drawdown line in the sand. Say you set that max drawdown level at 30%. If you manage to reach that drawdown level by losing 30% of your account your trading plan should have a set number of steps that you will then follow to determine what is going wrong. For example, you could revert back to demo trading until you start becoming profitable again, switch to much reduced leverage, evaluate your current trading plan/system to see if it is really meeting your expectations, etc.
If you want to be trading in the long run then it is crucial to take this sort of approach. Preserving your capital will be a prime criteria when you a successful trader, so why would you want to act any way different when you are learning to become one?
Rob Booker does a great job of explaining this point of view in a
presentation he gave at the last FXCM Expo (just don't let his jacket put you off too much!).