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How to quickly recover after blowing up?

2024-03-15

No trader wants to consider the issue of a margin call, yet it is almost a problem that every trader will encounter. If you have not yet encountered this situation, you are fortunate. However, in your trading career, you may have already experienced extreme drawdowns, so it is best to be prepared in advance.

The saying goes that one does not grow without taking a hit. Regardless, the market will never let you pass without paying a tuition fee. So how should one deal with a margin call and face trading drawdowns?

Pause trading and take a break

There are mainly two types of traders in the market: one type tends to take a break after a margin call; the other type tries to immediately win back the lost funds after a margin call. If you are the latter, you should put on the brakes in time, as inappropriate courage can bring you trouble. In addition, the account that has just been called for a margin indicates that there is a problem with your trading, which shows that you need to make some changes.

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At this point, pausing trading allows your emotions to calm down more quickly, so you can focus on solving the problems that have arisen. Although the pause time depends on the individual, it is best not to be less than a trading week. Shorter than this time, the risk of you experiencing unpleasant experiences again will greatly increase. In a week without trading or looking at charts, you can spend more time with your family and do what you want to do.

Review trading and diagnose problems

After leaving the trading market for a while, you can start diagnosing the problems. However, there may be more than one problem, and you need to first figure out where the mistake lies. This can be done from the following points:1. Time Frame. When you experience a margin call, you might be using lower time frames such as 5 or 15-minute charts, or higher time frames like 4-hour or daily charts. The difference between these is quite significant. Some traders can consistently profit using lower time frames, but most traders will see an improvement in their performance when shifting from a lower to a higher time frame, not the other way around.

2. Trading Frequency. Trading frequency greatly impacts trading performance; less is more, and quality triumphs over quantity. If you previously conducted 15-20 trades per month, try reducing that to 5-10 when you return to normal. Also, pay attention to combining this with the daily time frame, which will surely improve your performance.

3. Risk. The key to trading success is survival, not temporarily achieving a 50% profit. Therefore, no matter how much profit is made, consider the cost of achieving that profit first. Otherwise, it is not truly a good thing. It is best to keep trading risks around 1%, so even with five consecutive losing trades, it is only 5% of the account balance.

4. News Events. News events can bring opportunities, but this type of trading is random and unreliable. Even if you guess correctly whether the currency is bullish or bearish, you do not know how the market will interpret the data. Compared to betting on news, a pin bar at a key level in an engulfing pattern is more reliable. For the latter, you are using existing information, while for the former, you are just hoping the market agrees with your point of view.

5. Risk-Reward Ratio. One of the biggest mistakes traders make is taking profits too quickly. Whether intentional or out of panic, a negative bias (i.e., a risk-reward ratio where the risk exceeds the reward) is waiting for a margin call. Remember, never risk 100 pips to gain 50 pips, but seek setups that can provide you with at least twice the profit of the risk. After all, trading is for account growth.

 

Learn to control, halve everything

When trying to recover after a margin call, you should reduce your position size rather than increase it. For example, when you experience a margin call, the risk you take for each trade is 4% of your account balance. Once you are ready to return to the market, halve the risk. Similarly, trading frequency should also be halved, especially for intraday trading, which will yield better results.

In addition, in a newly created account, remember to reduce the deposit by half. The funds in your trading account are the risk capital you can afford to lose. Using a lower amount when creating the second or third account will help reduce your stress level, which will ultimately lead to better trading performance.

After a trading break, most people can recognize their own mistakes and halve everything. Then you have to decide whether to deposit into a new real account or whether you should return to simulated trading. However, there is no clear answer.Some individuals can treat a demo account as if it were a real account, while others may find that simulated trading feels unreal and thus struggle to adhere to discipline. This all depends on the trader themselves, depending on their personal circumstances and personality. If you can treat simulated trading as you would a real money account, then you can also use a demo account.

Remember, whether you are depositing into a real account or creating a new demo account, keep the account size at a minimum level. If you plan to eventually start trading with a real account of $500, you should not be trading on a $50,000 demo account.

Conclusion

Regardless of the size of the capital, a margin call is never a pleasant experience. And sometimes, most traders will experience at least one margin call before they can achieve consistent profitability. However, instead of blaming oneself for the losses, it is better to view it as tuition for trading education. Reflect on oneself in the margin call, summarize the issues, and start anew.