DislikedAt what point would you decide to take a position out if it goes too much against you? 300 pips, 500, 1000? Say for example in 2008 when it spiked 2000 pips in 2 weeks, what would you have done then? I only wish you the best, but it is my belief this type of trading isn't sustainable in the long-term.. But hey, prove me wrong.Ignored
Don't bother reading if you have never held a trade longer than 2 days.
I make this mistake all the time, however I earn a bit of coin in my day job and therefore can prop up the margin to hold positions.. Mind you I have been caught rather badly in the past when still a noob and still learning the forex beast on the exact scenario that you describe.. The other benefit (some may say risk) is that we can still hedge in Australia so if I have a large sell position say 1.0 lot and it is down by $500 (examples only) I can take a 1.0 lot long to boost / negate the free margin. This all sounds very risky but I still place the trades based on technical and long term technical. For example I have a long in play on eur/usd that may not get closed for 12+ months but it will eventually become positive. Depends on your disposable income.
HOWEVER - When you look at a loss there is a question you need to ask yourself.. how long will it take me to recoup that loss as in are you stressing over a loss that you could easily gain back in one day of trading, is it the pride and emotion that is making you hold the trade?
This happened just the other day to me trading this pair as in EUR/USD. Not exact figures as going on memory while at work.
Monday +$700
Tuesday + $1900
Wednesday + $490
Thursday + $600
Friday + $0
Monday morning + $1020
Then as the pair dropped I cleaned up some long positions - $2200 so for the day i was down $1180 but based on the previous week I could recoup that $1180 rather quickly and the pair looked to be dropping further based on technical and fundamental so take the loss and move on.
So if you take this EUR/USD pair. Will the US ever be in trouble again? Yep you bet, as nothing has really been fixed, so another meltdown will occur. This could be years away, in the meantime I sit on a loosing trade, but I have not actually lost the money until I close the trade. It is the same as the fools that pulled their super when the share market crashed, some friends lost 100k in a panic when they cashed in their shares or moved to cash. If they had of left it where it was they would of actually made money on the rebound. As long as you can hold the margin in a safe zone (1000% is my minimum and target normally) you can hold almost any trade until it becomes positive. Almost... there are some pairs that this system will not work at all. Take the USDZAR, it can fluctuate so much it can eat your margin very quickly, but with the risk can come reward if you take a smaller lot and hold hold hold.. China, US and Russia are investing in South Africa, it will become the new China (it may take 20 - 40 years) but if you go long and can hold for that long... $$
This is where smart money makes a heap of coin, another example and easy to say in hindsight but most on this forum are excited by a 100pip move.. now imagine if you had bought AUD in October 2008 at 0.62677 and then closed that trade on the 1st of April 2011 at 1.09801 = 47124 pips (1 pip being 1 single digit move) plus during those years you would have made swap... Ching Ching.. There are a number of people planning this again, waiting for AUD to get down to the 0.65-69 handle and then they will place long term trades again.
So to expand further, lets say I end up in a position where I have a sell at 1.1 and a long at 1.4, and we are trending (yes I know a very wide trend but it is an example) I can still trade between the trend instead of having my entire free margin sitting around the 200% mark in a danger zone. So in between the long trades I can scalp and make shorter trades.
I do not suggest this as a technique but it works for me... mind you I lost an enormous amount of money when the RUB trading was close by the US Banks, talking 40k hence why my trading results are not shown in my footer, I am building again though .
A genius is born every minute, me I am lucky if my socks match.