Forex Trading: Dominoes Principle. Part 1
Fernando has more than 6-year-old experience of professional trade, with a good long-term indicator of profitableness. He has helped to develop an original material for On-line trading academy. He has developed and has independently run courses on trade for 400 students. He also is the coauthor of the best seller “Strategy for intra-day trade”.
The given articles are devoted to usual problem which falls in risk management section (in contrast of the technical analysis). Within last 10 years, I was lucky to be in constant contact to all categories of professional independent traders.
From time to time, to me traders addressed for council concerning a position which has gone not how it is necessary. Usual, something really went not so – for this reason this person and addresses to other traders for council. What to do?
First of all, I am not the licensed adviser to give investment councils (my license has expired very long time ago). But I share own experience how to be in positions which in the past have gone not how it was necessary to me. Especially in the beginning of my trading career there were cases where I completely lost the control, and also where I could cope with a situation so that could start to struggle further.
There are many versions of “bad” positions, but for all from them some components are usual. Let’s study them to find out “how to get” to a bad position! Thus, we will learn how to try not to suppose bad positions.
There are really some simple steps which begin a way to an input in bad positions.
Transformation: the first dominoes
For the beginning trader “the transformation” problem is extremely extended. What is it? The Majority of beginning traders enter into the market with mentality “buy and hold”. This strategy corresponding to long-term investment is usually transferred to “active trade” where strategy “buy and hold” definitely doesn’t approach.
The main strategy in active is “to buy and sell” (and on the contrary). The concept of “transformation” concerns switching of time formats in the middle of trade – a capture of the transaction which is intended for intra-day trade or some very, short-term time scales some very, and then its “transformation” in the transaction of more long-term time scale.
Doing transformation in the middle of trade, the trader increases duration of the transaction and, thus, it undertakes greater risk. A rule “not to add to losing positions” concerns not only addition of greater volume, but also and to addition of greater transaction time.
Adding duration of the transaction to already open position, the trader enters on a way of escalating of risk. It is first dominoes which falling cause chain reaction (or risk escalating) that, most likely, will lead to full breakdown.
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