To trade is to take a risk. Sometimes you may lose everything. And if it happened to you, you are not alone. But only a few share their stories because they are afraid of being embarrassed in public.
One trader though sent me an email with his story how he wiped out his Olymp Trade account. Here’s what had happened.
A story of how a trader wiped out his account.
There were two screenshots attached to an email. It looked like he had lost $4,000 in under 12 hours. He entered 5 subsequent 1-minute trades and only one had won.
You naturally feel bad or sad that somebody lost that much money in so little time. I shared the story with some traders and they were surprised how could it happen?
A professional trader will deduce the reason simply by analysing the history of the transactions. But there are few catastrophic mistakes I wish to warn you about.
Critical mistakes that may quickly destroy your Olymp Trade account
Putting a large amount of money on a single trade
Putting a large amount of money on a single trade
There are times that you are pretty sure what will happen next. Call it the sixth sense, gut feeling or luck. No matter the name, you trust your feelings and decide to invest a great deal of your account balance in the next trade.
Such behaviour is of massive risk. If the trade loses, your failure is enormous.
And that is exactly what the trader from an e-mail did. Only in the first trade, he had lost more than a quarter of his initial sum of money.
Repeating this mistake will almost for sure drain your account balance. It nearly happened to our trader. In the second trade, he invested one third of the remaining money. Fortunately for him, the transaction ended neutral. The price was the same as the price at his entry so he got $1000 back.
Greed lies at the bottom of investing so much money in one trade. People want easy money, they do not want to wait. The faster and the bigger, the better. You should be careful and prepared not to give in to impulses. What you should do is to have a reasonable capital management strategy. The vast majority of traders won’t risk more than 2% of their initial capital in a single trade.
Believing the Holy Grail of trading exists
There are traders who trade using tips. Nothing bad about a little help but when they believe the tips are their Holy Grail, the problems begin. Often the tips are good but given in a wrong time to make a profit out of them. And so the traders wipe out the accounts.
Remember! The Holy Grail of trading does not exist. You will hear it from a majority of successful traders. There is no magical way to make you reach.
Success in trading is all about protecting your money and increasing the number of profitable trades.
What will help to bring forth the success is using adapted money management strategy, having control over your emotions and knowing when is the right time to enter and where is not. Professionals also experience losses. You cannot predict the market direction with 100% certainty. But with a good strategy and sticking to the principle of protecting your account balance in the first place, the losses are not that big and easy to recover.
The emotion that interferes with success is fear. Fear makes people insecure and uncertain if their decisions are right. So they do have the information required to enter a profitable trade, but they are still looking for a magical tip from a trading guru.
Unfortunately, while they were waiting for a tip, the market had started to reverse and they entered too late. The so-called guru did not lose anything, but the person who trusted him risked own money. That is why it may be quite a good idea to take responsibility in your own hands. To create your own trading plan and then implement it.
Trading in the opposite direction to the trend
Another fatal mistake to avoid is trading against the trend. The trend indicates the direction of the price. So what’s the point in trading in the opposite direction? It can definitely wipe your Olymp Trade account out.
Below, you will find an example of the trend. What conclusions can be drawn from it?
- The trend is going up. Hoping the market will reverse at some point the trader could try to make a countertrend transaction. Imagine the situation below where even without drawing a trendline it is evident the market is going down. Obviously, on the way, there are always corrections. Those moves could be read as a sign of trend reversal. But in fact, it can take a while when a real reversal will occur. In consequence, fighting with the current trend can bring you a series of lost trades and drain your trading account.
- Two identical transactions in the same price range. This kind of mistake is driven by anger. You have placed a trade at a certain price. The market went in the other direction and you lost money. Regardless, you have the feeling the market is wrong, not you, so you have a need to prove yourself. You place the order at exactly the same price point and you lose again. The market is not concerned about your emotional condition. It offers the same chances of making a profit to everyone. It is up to you whether you take advantage of it or not.
Setting too short timeframes
Olymp Trade offers a very attractive feature while trading options. You have the possibility to choose a very short timeframe. And in a result, you can make good money in a short time. However, you have to keep your emotions in check. Short timeframes mean you have a chance to make a profit fast. On the other hand, you may have not enough time for rational thinking before you enter a new trading position.
I do not want to say trading 1-minute positions is bad. It might even bring you bigger return than a long timeframe. But if there is not enough time for you to think your moves over, you may end up losing.
Repeat the same mistake few times and you will drain your account balance. This is what happened to the trader from the e-mail. He lost $4,000 during five consecutive 60-seconds trades.
That is all in this subject I wanted to tell you. Don’t be ashamed of your mistakes. Learn from them. And maybe let others learn from them too. Write your failures stories in the comments section down below.
Before investing real money, practice your skills on a free Olymp Trade demo account.
We wish you only profitable trades!
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