The Worst Things to Do with a Losing Forex Rates Trade
A fact of trading forex rates is that you will have a losing trade at some point. However, it is the way that you handle the losing trade that truly affects your account balance and trading mentality. There are a number of things that you should never do when you have a losing trade. Unfortunately, these are mistakes that many new traders do make. Doing any of these things will only compound your losses and this is something you should never do.
Ignoring the Situation
One of the most common mistakes that traders make is to ignore the losing trade. When this is done the trade will continue to lose money and in some extreme cases a margin call will be placed on the account. When you see that your trade is losing you should either manually close it or check that you have stop loss orders in place. Of course, if you are positions trading then there are times when your trades will lose before they start to profit. At these times you need to monitor that the trade is still within the parameters you set for it.
Putting More Money into the Forex Rates Trade
Another mistake that some traders make is putting more money into the losing trade. While some traders are using the averaging down theory more are simply adding to the loss. Averaging down is a risky system where you add money to a losing trade so when the market turns you make all your money back. However, more often than not you will not actually make your money back and you simply add to the loss.
You should also consider the amount of capital you are risking on the trade. If you are putting more than 2% of your account into one trade you are exceeding the recommended risk amounts. Placing more than this amount on a single trade is considered dangerous as you deplete your account much faster.
Not Working Out What is Happening
When you have a trade that is losing you should consider why it is losing. You also have to see if there is a chance that the market prices will turn. Many traders do not take the time to do this because they just manually close the trade. It is very important that you look at what the market is doing. There is a chance that this is a short reversal in price movements which will right itself shortly. If you close your trade then you will miss the turn and the profits that come with it.
Always Have Your Stop Loss Points
The best way to limit the risks of having a losing trade is by having stop loss orders. There are a number of stop loss orders that you can use to limit your losses. A lot of trading platforms automatically place a stop loss on the trade. However, the placement of this order may be too far from the entry price to be of help to you. It is important that you look at where your stop loss point is and place it according to your risk management plan and trading strategy.