Forex Trading: Dominoes Principle. Part 2
Averaging: the second dominoes
Now, when we know how to avoid the first dominoes, the second, third and fourth dominoes are usual characterized by the most dangerous action. It is not addition of duration of the transaction, but risk exposure strengthening, by increase in the size of a position – usually it is called “loss position averaging”.
Once again, it not only concerns “strategy” which was propagandized in the past for use at long-term accumulation of assets, but it also instinctively for each trader. The majority of us, possibly, are familiar with an instinctive impulse to add to a loss position, averaging, thus, the input price. But, arriving in a similar way, you should understand that take one more step appearing in a situation which would like to avoid!
Active trade is enough risky, so what for also to aggravate it? We deal with business where it is necessary to reduce risk, instead of to increase it.
Process of a non-admission of the big losses begins, first of all, with avoiding of situations of escalating of risk, and their signs aren’t too difficult for specifying that usual occurs by means of unplanned additional risk exposure to increase in duration and-or the size of the transaction.
You did it earlier? If you want to become really successful trader should cease to do it.
The damage control
If the transaction proceeds much longer than you expected, if you have greater size of the transaction, than originally planned, you should take a way of the control of damage. The simplest method of the control of damage – risk reduction!
As the transaction has gone not how it is necessary, beginning traders can get to “a hope condition” very easily. All people have similar involuntary reaction. Therefore, quite normally to hope for the best, for example that the position will return to a comfortable condition for you.
However, such automatic (primitive) reaction is very harmful to good trade. As I always like to speak, “Good traders aren’t born – they become the good trader”. The qualified trader has just the same skills on an exit from bad positions, as well as on an input in the good.
In case of the increased risk, we should act almost mechanically or if you want, automatically, without any hopes or imaginations. In this case, we regain control over situation, as well as should make.
And, especially in case of the transaction which has left outside the limits of that, “that we originally expected”, we should achieve the damage control, starting to reduce risk, instead of instinctively to add to a bad position and to increase risk.
People who took the decision to participate in forex trading must start from learning the basics of this market to make sure you do not experience problems with this industry.