How to lose a lot of money by trading Forex!

If that title isn't obvious enough, this is a post about losing money by trading currencies. To give you a little background, I have been interested in forex (foreign exchange) trading ever since I first heard about it, but I never knew what trading platform to use, and honestly it all seemed just a little too good to be true. Well, that was until I ran across a blog from a person who was having some success with it, www.paulezimmerman.com

So, a few months back, I started a practice account on www.oanda.com. They will let you work with any amount of money you want, and you can play around with it and see how you would do, trading exactly like you would if you were using real money. After about three months of piddling around with my practice account, I decided that I had it figured out and made my first real deposit. Well, I was down about 40% the first week, I didn't even realize that was possible! I have since clawed my way back up to -35%, but I have learned so much! I have realized that my trading style changed when I started using real money. I was no longer willing to allow a loss to run it's course and come back into a profit. I also started playing "catch up" after each loss and jumping in as a price evened out and started to head the other direction, against me.

I have been experimenting with a longer term trading style that I learned from Paul in the aforementioned blog. It is a very solid system, but with the amount I have on deposit right now, it would take me about four months to get back to even, so I'm trying to refine my "scalping" so that I can shave a few dollars of profit here and there until I get even. Although I'm still a bit concerned about losing more, but I'm going to be much more careful than I have been in the past.

So far I've learned a few lessons:

1. Pay attention to the news! I had positions open that were very vulnerable to economic news, and that is how I have lost large amounts in short periods of time.

2. Tie yourself to your desk! I know that some people enter their trades and then walk away, but if you are day trading, I just don't think this is smart. The only times I've had catastrophic losses were the times that I left trades in volatile pairs open overnight.

3. Don't commit your entire account to one currency pair at one time! If you only use a small percentage of your account, no more than half, then you can afford to ride losses out until they either come back into a profit range, or at least become a more manageable loss, but if you have your whole bankroll committed, you will be margin called.

4. Nothing sucks worse than a margin call! This actually happened on a practice account I had, but it still sucked. There is nothing quite as frustrating as watching all of your profits disappear, along with about half of your starting capital.

5. Don't risk more than you would be willing to lose! Day trading Forex is a lot like poker, in that, it is gambling, but more controlled. A good Forex trader can make a very handsome living by sitting at their computer for a few hours a week, but a bad one could lose everything they have. The same is true of poker players, the best ones can grind out a very comfortable salary, but the bad ones lose everything.

6. Forex is a zero sum game. If you're winning, someone is losing, you just have to be on the winning side more often than not, and you can come out ahead.

7. The opportunities are limitless, in both directions. As fast as I lost all of that money, someone else was making it. The sky is really the limit with Forex trading. With the amount of leveraging allowed, and the resources available to traders, it is entirely possible for a regular joe to turn a very nice profit from his home computer.

So, in true underdog fashion, I have taken my licks, and I'm going back in for more. I'm just going to make sure I keep my hands up this time, and hopefully get in some solid hits myself.