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|When should you get out of a bad position|
Trading without stop loss is the biggest mistake a trader can make.
This is what you read on any website, weblog, article, e-book and… .
Although they do know that this is a big mistake, almost all novice
traders make this mistake at least once. Most of them repeat this
mistake for a few times and they wake up when they have already blown up
a few accounts. Most of them give up for good because they have no money
to trade anymore or they are emotionally hurt and they do not dare to
try Forex trading anymore. Some of them do not like to give up because
they still think that Forex can make money for them, but they become
skeptical if it is really possible to make money through forex trading
What should you do if you make such a mistake?
If you have taken a position and it is moving against you while you have no stop loss, you should close it as soon as possible. Ask yourself where the stop loss of such a trade should have been placed. Then if the price has not reached the stop loss position yet, set your stop loss immediately. If the price is beyond the stop loss, then close your position immediately. Yes, it is possible that the market turns around as soon as you get out, but it is ok. You never know. You can still trade and recover your loss if there is some money left in your account. But if you lose all your money, you may not be able to trade anymore.
I have seen some traders who check the bigger time frames when their positions go against them. They trade intra-daily using a small time frame like 15min, but when their positions go against them, they check the bigger time frames like one hours or 4hrs and convince themselves that although the position (which has been taken based on the 15min chart) is against them, the one hour and 4hrs charts are in the right direction and they can get out without any loss very soon. Then when the market keeps on moving against them, they refer to daily and weekly charts. Someone who wanted to be an intraday trader, becomes a swing trader. A 15min position which can not lose more than 50 to 80 pips maximum (depend on the currency pair), is now 500 pips in loss. If your position is taken based on a special time frame and it is against you, you should close it based on the same time frame. You should not hold it just because the bigger time frames show some agreeable signals. If the time frame that you took your position based on, has changed the direction and is completely against you, you should be OUT as soon as possible.
You Are Either Right or You Should Be Out!
The bottom line is do not trade without stop loss. Enter the stop loss value before you click on the buy/sell button. Do not set the stop loss after taking the position. Set the stop loss at the same time, because you may not be able to edit your position and set the stop loss later.
Forward this letter to any forex trader you know. Aspire to Inspire, Before You Expire!
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