Think Like A Trader Blog

Thursday, 3 December 2015

Trade As Though You're Facing a Margin Call

Reading Time - 4 Minutes.

Quick note – Decisive Trading is now on Twitter! Add me on @decisivetrading

Another quick note – I still have no idea how to use Twitter!

Ok, so why should you trade as though you're facing a margin call? I only realised that I do this yesterday. I think like this before every trade, and it permeates my mind from the moment I turn on the charts, until I switch them off again at the end of my working day.

Now, I don’t know if any of you have suffered the dreaded ‘margin call’ from your broker. But if you’re a seasoned trader, then I know you will have experienced it at least once… Probably more than once.

So what happens? Well, you’re in a trade, your account has been decimated and you’re very close to blowing said account. All of a sudden everything you own begins to chime – you get an email, your broker app pings, and you may even get a text from your broker. The message is clear – ''You have fallen below our minimum margin requirements, please add funds immediately or we may cut back your positions''.

It’s not a nice feeling, mainly because they are telling you that your account is gone. Maybe you've just had a run of bad luck, but more than likely, all of your mistakes, your revenge trading, your bad entries and thoughtless exits have caught up with you. You either need to add money to the account, or you’re done with your trading career.

So yes, I've experienced it. No trader worth their salt has gone through their career without blowing an account and experiencing a margin call. It’s a horrible experience. Dreaded. One I want to avoid at ALL costs.

So why in the heck am I advising you to trade as though you’re about to be margin called?

Again, I only just realised that I actually do this. But let me explain why it works: I was thinking about this last night – I know, I know, my poor, long suffering girlfriend, how does she put up with me?

I do this for one reason. It makes me very cautious and selective. Because if I’m expecting to be margin called if I lose money again, then I want to do everything in my power to make sure the next trade is a winner, an absolutely perfect setup that smashes home some very nice profit.

I will check my signal and double-check it. I look at the overall trend and try and spot any higher timeframe obstacles to my trade. Is it a perfect candlestick that aligns with all of my rules? Am I trying to go long when the market has just made a bearish crash through three higher lows?

And believe me, it works. It’s not nice to be thinking about blowing your account all the time, but it is of huge benefit to you as a trader. Because one silly trade may not blow your account, but it brings you one step closer to doing exactly that.

So I trade as though my broker is watching over my shoulder, getting ready to cut me off. And because of that, my broker never gets the chance!

I hope you've all had a great trading week!

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