Most people get it all wrong. If you have been trading for your own account we guarantee that at some point, you have done it too.
We are talking about chasing breakouts.
What does this have to do with opening a Forex signal account? Plenty…but we will get to that in a second, promise.
First, let’s look at the psychology behind why people trade chart breakouts. Even if you know the reason, stick with us…it will pay off later.
The Anatomy of a Chart Breakout
When price hits new highs/lows, some traders get excited and start chasing the move, hoping to catch the beginning of a long (and very profitable) trend. While trading breakouts can work, you will find that the breakout will fail more often than it succeeds.
But it doesn’t prevent new traders from trading them and getting burned. The reason traders chase these trades is due to classic fear and greed.
Some traders are greedy and want to get on a move that is already showing results. They think that the move will continue and is a sure thing. Since price has been doing well so far, there is no reason for it to stop…right?!
Other traders are motivated by fear and don’t want to be left out of a big move. They will get into the trade for a different reason from the first group, but the result is the same.
You may have chased a breakout in the past, for one reason or another, or a combination of the two. The important thing to do right now is to remember the emotions you had when you chased a breakout.
Were you acting out of fear or greed, or a combination of the two? Understanding how you react when you see a breakout situation, will be very important in the next section.
When to Open a Forex Signal Account
Now we come to opening a Forex signal account. We will start by saying that when you open an account is entirely up to you.
Remember that past performance does not guarantee future results. So even if you open an account at the ideal time, it will not prevent you from losing money.
But an optimal entry can save you money. That can make a big difference when you take into account compounding returns.
So here is the best time to open a live Forex signal account….
When the account is in a drawdown.
This is the exact opposite of what most investors will do. They will chase the hot hand out of fear and/or greed.
But if you wait for a losing streak, you can get in at a discount. Even if your account balance goes lower, you will have saved some money by not buying at a top.
*Gasp* You mean that we aren’t telling you to deposit all your money right now?
Yes, that’s right. We want you to get the best results possible results. If that means delaying your deposit, then that is the right thing to do.
OK, let’s look at our Theta Trader System as an example…
If you had opened your account when the signal was up +30.21%, you would have had to endure a drawdown to almost 0%.
Please note: 30% drawdown is safely within our risk parameters. Remember that you cannot get significant rewards without taking some risk.
But even if you understand that, it doesn’t make it any more fun. A drawdown is a drawdown.
However, if you didn’t chase the “breakout” move from 0% to 30% and waited for a drawdown, you would have set yourself up for the huge move afterwards. If you opened your account where the red arrow is on the chart, you would only have only seen about a 6% drawdown.
In addition, if you left your money in from that point until now, you would have seen about a 67% gain.
Compare that to the person who chased at 30%. They would “only” be up 37% right now. Granted, a 30%+ gain is still pretty awesome, but 67% is twice as awesome.
Our traders are throughly screened and we feel that they will make money in the long run. But they will have ups and downs, that is just how trading works.
So waiting for a drawdown period is a great way to improve your gains.
Yes, waiting for the drawdown is such a simple strategy that you may think that it is a waste of time to read this post. But remember, that is the logic side of your brain speaking.
When you are actually getting ready to open an account, your emotions can take over. Logic can go out the window and if that is the case, you will act just like you act when you chase breakouts.
The Finance industry sees this all the time. When a hedge fund, mutual fund or signal service is doing well, money starts flowing in. But as soon as there is a down month, or even a down week, people start to withdraw their money and the flow of new money ceases.
Investors should actually be waiting for a drawdown to open an account. If the account is doing really well, then then can add more money accordingly.
So before you open your account, take a deep breath and ask yourself if you are acting out of fear/greed or you really are doing the right thing. Of course, if you really want to get in and you don’t care about maximizing returns, then now is as good a time as any. If the signal is on a winning streak, then you might want to open your account with less than you originally wanted to.
But if you really do want to optimize your entry, waiting for the drawdown can have a huge impact on your results.