Three Tips for Avoiding Margin Call

Margin call, one of the worst situations in forex, is probably the most terrible thing for forex investors, which may make investors lose capital for sustainable trading and bear large capital losses.

So, how can forex investors avoid margin call?

Whether there will be a margin call is determined by the profit and loss of the trade, which in a certain period of time is decided by the success rate of the trade, the profit and loss ratio and the single volume of each profit and loss.

Therefore, investors can avoid margin call by improving their trading ability from the following three aspects.

• The way to improve transaction success rate: improving the ability of analyzing and judging the market;
• The method of improving "profit loss ratio": choosing a better trading strategy;
• To make the single volume of profit larger than that of loss: money management.

Specific operation methods are as follows:

01. Make trading strategies

A completed trading strategy includes:

1. The timing of entering the market.
2. Setting of stop loss.
3. An expected profit target.

Reliable trading opportunities include:

1. When an important cyclical inflection point of space, time and index verification occurs.
2. One of the most common trading strategies is to follow up on a pattern or trend when a breakout appears.

Commonly used trading signals include：

a、Breakthroughs of the classic "reversal pattern" and "relay form"

b、Breakthroughs of important trend lines and moving averages;

c、Breakthroughs of important high and low points in the early period.

3. There will be a chance to enter the market when the stop-loss start to stabilize or the rebound meets the resistance signal, with the secondary retracement wave reaching an important percentage position of the main trend retracement.

4. The strategy of increasing trading volume after the price breaking the balance on important "long-short watershed"

02 Objectives and methods of fund management

Fund management, also known as single volume control, is an arrangement for the amount of each transaction and the increase or decrease of the single volume. The management of funds is like the arrangement of forces by the commander. Fund management in forex pays more attention to the batch investment of funds and the timing of investment.

1. Objectives of fund management

1. To control the total risk. 2. To make money in large quantities with less loss.
     Between the two goals, total risk control is more important, which is to limit the maximum loss of foreign exchange transactions to an acceptable range.

3. Ways to realize the goals of fund management.
   a、Determine the amount of each transaction according to the size of the entry price and stop loss price of each transaction and the maximum amount of loss allowed for a single transaction.

b、Use the strategy of composite position.

c、Adding positions in a pyramid style.

03. Attentions

In forex, fatal mistakes are like to appear in two situations: one is continuous profit, the other is continuous loss.

Most foreign exchange traders are driven out by the market because they cannot pass these two barriers, which exactly show the weakness of "human nature".

• When there is continuous profit.
  Investors are often greedy, which is the weakness of human.
• They may blindly expand the investment scale with confidence, while the decision is made hastily, and the amount of funds shows a V-shape reversal, only ending up with the transaction quickly falling from the peak to the bottom. It is difficult for investor to turn over again, if his/her psychological adjustment ability is not strong enough.
• When there is continuous loss.
  Investors always cannot help being fear, which is another human weakness.

Once they lost their confidence, there is no courage to make decisions. So traders often say that "if you lose funds, you can restart, but if you lose confidence, game over."

What's worse, some investors are in a mess after continuous loss, who are irrational and eager to recoup their losses. However, if there is no trading opportunity in the market, forced trades will eventually make them eliminated by the market.

Therefore, foreign exchange traders should always keep in mind the importance of fund management and trading strategies. 

When you have reached a certain level in market analysis, shift your focus to trading strategies and fund management in a time. Only in this way an you finally succeed in the foreign exchange market.