This article looks at the different reasons for a negative forex live trading performance.
The primary goal of any trading plan is to reduce risk, increase profits and ensure a consistent level of trading performance; this is why all the trading plan tests need to be completed on a regular basis. It is through constant monitoring of your live trading performance that you will determine whether or not you are on track.
The forex live equity curve
There are various means to determining your trading efficacy, with one method being the equity curve. An equity curve measures the correlation between trading plan test results and live trading results. It indicates the trading outcomes of a period of time, and the curve of the line will indicate effectiveness.
The average slope of an equity curve is upwards as this is the normal line of an upward trend. If both curves are on an incline then there is a positive correlation. If your test results show this curve but your trade results indicate an opposite direction, then the correlation is negative. The decline is due to a lack of correlation in historical and forward performance testing, which notes a need to adjust the trading plan.
There are various reasons as to why an equity curve may show negative correlations, but here are the more common options:
1. A trader error
There is no ideal trading plan, but even if there was it could fail if a trader is unable to use it correctly on the forex live market. All traders experience mistakes at some point in their careers, and the majority of them can recall these moments. Trading can only be improved through practice, practice and more practice. If you are not willing to put in the work, you must not expect to reap the rewards.
2. A technical difficulty
The foreign exchange market is unique in that one can trade from any location as long as you have a computer and high-speed internet. Furthermore, the market operates on a 24 hour trading timeframe from Monday to Friday. While this is highly convenient, there are times when it can be damaging. Technology is unpredictable, even more so than the market sometimes, and can crash on a trade at the least expected moment causing you detrimental losses. While these occurrences are rare you must consider how they affect your trading.
3. Order fills
When testing a trading system you can fill your virtual orders instantly; however, this can cause problems for your forex live trading. When placing orders on the forex live market you will find that they are set in queues and, dependent on the amount of orders, may not be filled at all. This is a great difficult many new traders face when transitioning from demo accounts to the forex live accounts.
4. Unique conditions
Global events can have a great influence on the forex live market movements. While regular forex news releases are made, unexpected news – such as sudden political instability – can have significant consequences on market activity. Despite the tireless planning, no trading plan can account for these instances and their effects on your trading activity.
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