How To Determine The Right Time To Cut Loss
Good forex traders always know when to cut loss for their bad positions in the market. Take profit early and let the losses continue to run in anticipation of recovery is a mistake that is often done by many beginner traders.
Detecting Bad Trading
To reduce forex losses, traders must know how to detect and get out of bad trading, without involving emotions. Trading near the level of reversal is a sign that trading is bad. This trading is a sign of the length of the order placed on the pivot or the psychological form of resistance. It may also be a short order which is too close to pivot or psychological support.
If the candlestick reversal appears in the chart pattern, this indicates that the trading conditions may be bad. Even with just a single piece of news from the currency pair we are trading on, it can make the direction of the price move against our trading, and it can be bad or a loss.
Taking Action When Trading is Bad
After detecting bad trading, you should take a step out of the transaction. Close transactions immediately to limit your losses. In addition you should try to recover from your losses by opening new transactions quickly. Because this tends to produce impulsive decisions that lead to worse trading. You have to assess your loss rate, and try to recover it only if the market shows a good chance.
Stategies for Escape
You should also have a strategy of escaping for any bad trading. This can include setting the amount of funds in each trading that you will invest. It can also be a percentage retracement method that you assign a total percentage of your total account and get out of trading if losses are at that level.
Placing a stop loss when a trader feels that the market is changing is a common escape strategy as well. In an uptrend, many traders place their stop loss below the lowest swing. In a downtrend, they place their stop loss under the latest swing. Other traders stop when they detect support and resistance areas for their trading.
One good escape strategy is to use 2 RSI periods. When trading is in long position and RSI falls below the 70 line, it is time to exit trading. For trading in short positions, the ideal time to exit is when the RSI goes above the 30 line.
Some traders also design a escape strategy based on a certain period of time. They keep investing in trading for a certain period of time only, and exit at the end of trading day.
Successful traders always adhere to the rules they have set for themselves in order to get out of trading. It is important that you also comply with the rules you have set out of trading. You will see that your losses will be significantly limited.