Tactics for waiting out losses. Death for a beginner and salvation for professionals
It is no secret that the choice of trading tactics depends on more than 50 percent of your future success, but the remaining 30-40 percent, which can affect the effectiveness of your strategy.
They directly depend on the chosen capital management model, and to a greater extent on how you will accompany the transaction and limit risks.
Today, there are more than a dozen models of capital management, as well as approaches to transaction support, but they can be conditionally divided into two groups, namely the tactics of cutting off a loss or the tactics of waiting out a loss.
Waiting out losses is an approach to risk management, in which the trader either does not use a stop order, or there is a very small profit and a very large stop order.
Reasons for using tactics of waiting out losses. Application options
Waiting out losses is mainly caused by the trader’s purely psychological state, namely the denial of his wrongness and an attempt to fight the market, to play against it.
Not only beginners, but also more experienced players resort to the tactic of waiting out losses, in the hope of a market reversal.
Despite the fact that the tactic of waiting out losses is considered negative and undesirable to use, it has a completely logical justification.
It is no secret that the market is always in some kind of range, which is formed for economic and political reasons of the countries that make up the currency pair.
Naturally, the market does not stand still, and traders force the price to move within a certain range, and the price can repeatedly come and bounce off the boundaries of the range and return to the starting point many times.
Because the stop orders Quite often, when volatility is high, traders take advantage of the cyclical nature of the market and do not set a stop order, in the hope that the price will return.
And now we invite you to get acquainted with the types of waiting out losses, as well as in what cases such use is appropriate:
1) Tactics of waiting out losses with a large stop order and a small profit
Despite the fact that the tactic of waiting out losses often leads to very disastrous consequences, most traders who use scalping strategies and pipsovka is used without even realizing it.
So, if we talk about pips, then taking into account the spread when entering a position, the market is no longer on your side, and the slightest activity can easily knock out a trader with a small stop.
Therefore, the pipsider and scalper have to significantly expand their stops and reduce potential profits, since the probability that the price will move 5 points in your favor, and not 10 against you, will always be on your side.
2) Tactics of waiting out losses by averaging
No matter how beginners and professionals feel about martingale, this type of money management can be safely attributed to the tactics of waiting out a loss.
The fact is that when using Martingale, the trader does not use a stop order at all, but by opening a series of orders with an increased lot, he relies on the cyclical nature of the market, in the hope of getting another pullback and earning at least something.
Unfortunately, a prolonged trend when using this tactic of waiting out losses is simply destructive for a trader’s deposit.
3) Tactics of waiting out losses by locking orders
Despite the fact that the lock allows you to fix a loss in a fixed position, the trader most often does not fix the loss, but tries to find a point for a positive way out of the situation.
As a result, the first profitable order of the lock is closed with a profit, and the second one relies on hopes that the market will roll back and the loss will decrease.
4) Complete absence of stop orders
Unfortunately, many traders are terrified of stop orders and rely on the cyclical nature of the market, hoping to wait out losses after some time and make a profit.
As a rule, if a trader gets caught in one long trend, he suffers huge losses.
The feasibility of using tactics to wait out losses
The forex market is not a place where you can wait out losses, since the volatility paired with the broker's leverage, they can quickly reset the balance of any trader to zero.
The tactic can work when trading real shares in order to receive dividends, as well as during the cutoff, when you simply need to wait out the resulting price gap in order to come out with a profit.
In conclusion, it is worth noting that the tactic of waiting out losses for intraday traders is comparable to suicide.
However, for a large investor trading in the stock and government bond markets, such tactics are par for the course and are an integral part of the trading process.