Revealing mistakes that cost millions of dollars
Whenever you invest in the Forex market, you begin to act blindly. You do not know at what point of the trend you are entering into the market. Perhaps you invest in Forex just before the change of the trend. Careful investment means protecting your trading cash and setting stop-loss. This should be done prior to entering into a transaction, therefore, you have no room for error or a decision at the last moment. Stop-loss – the predetermined point at which you leave the market.
In fact, it would be like to draw a line in the sand under the stock price with the words: “If the price per share will fall below this line, the market has not behaved as I expected, and I close my position.”
This allows you to protect your investment plan, as it reduces your losses, limits their already incurred, as well as protects from too human tendency to believe in his innocence.
95% of investments in the front position in the Forex market is that you expect to make a profit from the transaction. However, if the stock price does not change in your favor, you may feel the need to justify their purchase of shares and holding them up to make a profit. You may have heard about the idea, according to which all large investment losses began with small losses. While the stock price continues to change in a negative direction, losses grow proportionally. That’s why you need to have a set stop-loss – it’s like having the ejection seat, which will help you to abort the mission.
One of the most common questions that I get asked when traders talk about stop loss: “How wide should my feet?”
In other words, how much room for maneuver, I must leave the stock price. On this question there is no single answer, because it depends on the time period in which you invest. If you are a short-term investing trader, you have to set a stop loss close to the stock price. If you are investing long-term investor, you must leave a wider range of price changes and set a stop loss below.
Once you determine the time frame trading, you should be able to remove the market noise (volatility) for a specific period. You do not want to close the investment position only due to the fact that the stock price has changed little through the normal trading volatility.
The establishment of the narrow stop-loss, there are some drawbacks.
First, you reduce the reliability of your system, as you will have to stop more often.
Secondly, and more importantly, you seriously increase trading costs as transaction costs make up the bulk of your business expenses.
To give yourself a chance of success, you want to trade on a system that does not require large expenses for brokers. This is one of the main reasons because of which I recommend to my clients to develop a trading system that will be designed for a little more extensive period of time. With proper and appropriate system of your investment risk will be minimized and you can take the right position to maximize profits.
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