I've been getting a lot of PM's recently asking me questions I really have no desire of answering. But I will attempt share a tidbit of information that majority of "fresh" traders need to understand and some chose to completely ignore.
There is this term on the street refereed to as a forced liquidation or stop-out. The market participants (or simply your brokers dealer and his dealer friends) decide to, simply, force liquidate you out. I will attempt to give you some tips on how you can avoid this and reasons why this phenomenon actually occurs.
You may be wondering "There are so many traders out there, why are they trying to force liquidate me?"
The answer is simple; Because you have no stop-loss or don't know how to take risk (loss).
Successful traders know where their risk is, when to get in the position and when to get out. When you let a loss-run, what happens is that the dealer realizes this and will tell his counterparts to start bidding up/or down the price. The dealers risk would be placed slightly above/below your entry and 'they' will relentlessly try to defend that level. AND SUBSEQUENT LEVELS ABOVE/BELOW. Smart traders see this, if they happened to be betting in the same direction, their SLs would get hit and they would be squared from the position while you and they would bet in a new direction. You're left thinking "oh it got close to my entry.. but went only a little positive.. I expect more positive so I'll keep the position open"-- Only to see price starting to spike against your original entry.
And as you start pulling your hair and praying you don't get a margin call (ie. doing everything but closing the losing trade). "Oh it's only a $100 loss, I think I will still hold it"--The loss goes from a few bucks to a few hundred bucks to a few thousand bucks or complete stop-out. Now you're left thinking "I should of took the $100 loss; in retrospect that would have been a lot better than losing 50%+ of my account!"
Think about it.
They bid it up with the intent to sell it(they already have a perfect entry, what more of a perfect exit than where you will get your margin cut?). They bid it down with the intent to buy it.
So how do you protect yourself from this?
Learn how to take a loss.
Happy trading
There is this term on the street refereed to as a forced liquidation or stop-out. The market participants (or simply your brokers dealer and his dealer friends) decide to, simply, force liquidate you out. I will attempt to give you some tips on how you can avoid this and reasons why this phenomenon actually occurs.
You may be wondering "There are so many traders out there, why are they trying to force liquidate me?"
The answer is simple; Because you have no stop-loss or don't know how to take risk (loss).
Successful traders know where their risk is, when to get in the position and when to get out. When you let a loss-run, what happens is that the dealer realizes this and will tell his counterparts to start bidding up/or down the price. The dealers risk would be placed slightly above/below your entry and 'they' will relentlessly try to defend that level. AND SUBSEQUENT LEVELS ABOVE/BELOW. Smart traders see this, if they happened to be betting in the same direction, their SLs would get hit and they would be squared from the position while you and they would bet in a new direction. You're left thinking "oh it got close to my entry.. but went only a little positive.. I expect more positive so I'll keep the position open"-- Only to see price starting to spike against your original entry.
And as you start pulling your hair and praying you don't get a margin call (ie. doing everything but closing the losing trade). "Oh it's only a $100 loss, I think I will still hold it"--The loss goes from a few bucks to a few hundred bucks to a few thousand bucks or complete stop-out. Now you're left thinking "I should of took the $100 loss; in retrospect that would have been a lot better than losing 50%+ of my account!"
Think about it.
They bid it up with the intent to sell it(they already have a perfect entry, what more of a perfect exit than where you will get your margin cut?). They bid it down with the intent to buy it.
So how do you protect yourself from this?
Learn how to take a loss.
Happy trading