Forex trading, while potentially profitable, involves significant complexity. You the reader is most likely somewhat versed in this world. You may have taken a few trades here and there and you may have made and lost some money. But have you journaled your trading history properly?
You start off the day with a perfect 10.
10 Trades in a row 10 of them are in the money and you have made a positive % increase from each of them. Let’s say for this example it was 1% on every trade with a starting investment of $1000. That’s about $104.62 increase from those 10 trades you made in the span of a few minutes/hours. It’s looking great so far but then you make that accursed 11th trade. Lo and Behold your 11th trade is now on a loss. Maybe you’ve forgotten to add a stop-loss or maybe you were too busy and didn’t properly do your Risk-Assessment. Whatever the reason, your previous profit of $104.62 is completely wiped. This 11th trade has turned into a 10% loss. Time to close the trade and look at the stats. Well how does that look like now?
You are now on a $5.84 loss from your original $1000 investment, down to $994.16.
Wait but if I only lost 10% on this trade how am I under my initial $1000 if I made a 10% cumulative profit in the day? Here comes the beauty of statistics.
10% from your $1104.62 is $110.41. That’s a loss that was greater than your initial increase of 10% from $1000 to $1104.62 bringing you down to $994.16.
Your Trade Winrate may be 90.91% but your Net Value is now -$5.84 less. And that’s not even taking into consideration the spread costs. All it takes is 1 bad trade to ruin 10 good ones. So stop focusing on your Winrate % and start looking at your overall Equity.
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