Locking Tips and Tricks in Forex Trading.
One strategy for risk management in forex trading is a key strategy. There are also those who call it a position hedge / hedging.
If in this article the author exposes the “wasteful” locking strategy that is usually done by forex traders. This time we will discuss the use of a more “safe” locking strategy.
Outsmarting uncertainty in forex trading.
All forex traders are certainly aware that there is uncertainty in market mobility. normally we apply the use of stop loss (SL) to outsmart uncertainty, with the aim of minimizing risk. By using stop loss, we naturally limit the risk.
But not enough people realize that even when our transactions are in profit, they can quickly turn into losses. Especially when there are releases of big figures. You may quite often encounter a situation when the price reverses. Turn around so fast that you even hit a stop loss level that was previously installed. Even though your position was floating profit.
That’s because the market responds to reports released. Big figure reports are normally (not always) resulting in a significant impact on price mobility.
The event is certainly frustrating. To anticipate there are at least three choices of strategies that you can do:
- Closing a position near the crucial report release
- Apply trailing stop
- Implement locking strategies
What we will discuss in this article is implementing the locking strategy.
Why, why is it locked?. Isn’t the transaction condition profitable?. Doesn’t that mean limiting profits?. Why not let it reach the take profit level (TP)?.
It is true. I am not suggesting that this strategy is the only choice. Rather it is sharing the view that it is precisely in this condition that locking can be done. As for your consideration, of course you want.
The basic concept is to outsmart uncertainty due to the effects of the crucial report announcement.
Suppose when approaching the release of a crucial report your position is floating profit. Normally, close to the crucial report release, prices tend to move sideways. As a technical, your forex trading system reveals that there is still a potential price will move according to your position. However, the market condition that is close to the report is quite annoying.
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Well, in such conditions there is no harm in you “locking in” the profits that have been gained by doing a “profit lock”. When then the report is released and the price moves in the direction of the previous position. You just have to “unlock” by removing the position opposite the market. After that you just let the market determine the ending position that is still open. This does not conflict with the concept of “let your profits run”.
Examples like this:
You already have an open position, namely buy GBP / USD as much as 1 lot, for example at the level of 1,50000. SL installed at 1.49000 and TP at 1.52000. Then the price moved up and reached the 1.51000 area. At that time, the condition of your transaction is a floating profit of 1000 pips.
Sometime near the crucial report release, prices move sideways even though your TP has not been reached. By using a profit lock strategy, you open one sell position lot at 1.51000. Thus, the condition of your transaction is “locked” with a profit of 1000 pips.
Pay attention to the resistance level. For example in the range of 1.51200.
Calculate net profits.
Well, when the crucial report was delivered and the effect was positive for the pound then followed by a break above 1.51200. Immediately discard (close) the sell position that you opened earlier. This position certainly suffered a loss of 200 pips. However, when it turns out the price continues to rise to touch the level of 1.52000, the open Buy position will record a profit of 2000 pips. Your net profit becomes 2000-200 = 1800 pips.
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This is certainly better than if for example the release of a crucial report is bad and results in negative sentiment for the pound. Let’s say the price then drops to 1.49900. If you did not prepare for the anticipation, you would lose 100 pips (even though it had a profit of 1000 pips).
Illustration like this:
Before crucial reports are submitted:
Strategy if a crucial report has been submitted and the results are positive:
Unlock Profit After Release report
What if after applying the profit lock strategy above It turns out that the crucial report release is bad and the price drops? Easy. You just need to close all of the above transactions with a profit of 1000 pips (brutal, before commissions and swaps if any).
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