Forex Switching Methodology
In forex trading, the switching strategy is to change direction by closing the losing position and then opening a new position in the opposite direction from the position that has been closed. How to do it?
Switching based on the meaning of the word is replacing. In forex trading, the switching strategy is to change direction by closing the losing position and then opening a new position in the opposite direction from the position that has been closed, in the hope that the second position’s profit will be greater than the loss in the first position that has been closed.
Examples of Application of Switching Strategies
Currently the AUD / USD price is 1.0300. I predict AUD / USD will rise towards 1.0400. Therefore I opened a long position.
How many hours does AUD / USD move against my predictions, AUD / USD down and currently at the level of 1.0270. This means that the loss position is 30 pips
After re-analysis, it turns out that AUD / USD will go down towards 1.0200 level.
So that today does not lose, I decide to close my buy position with a loss of 30 points and open a new sell position. After a few hours it turns out that the market moves according to the results of the second analysis which is down, and is now at the level of 1.0200. Finally, after feeling enough profit, I closed my sell position with a profit of 70 points.
From the accumulation of the 2 transactions above by switching, today I have a profit of 40 points, that is, from a profit of 70 pips minus a loss of 30 pips
The basic principle of cut & reverse technique (switching) is to make changes in the direction of the transaction position drastically (reverse position) if the initial transaction position experiences a loss (misdirected). In such conditions the transactor will perform Cut Loss (liquidate the initial position) and immediately open a new transaction position in the opposite direction to the position of the initial transaction.
For example: if the transaction agent initially opens the initial transaction position by placing a New Open Buy Position for 1 Lot, then if the position experiences a loss with a sharp fall in the price downward, the transaction agent will make a Cut Loss in the buy transaction position (Close Buy Position) and then open a new selling transaction (new Open Sell position) also equal to 1 (one) lot.
The basic logic of this transaction technique selection is to provide an alternative to how a person transactors can revise their transaction position and anticipate if there is a sudden change of price trend without losing the opportunity to make a profit. From a technical analysis point of view, cut & reverse position action will only be done if the price broke the Support Level or Level Resistance . The Cut Loss Position for a buy transaction will only be done if the price trend rises down and breaks the Support Level, while the Cut Loss position for the sell transaction will only be done if the downward price trend turns up and manages to break through the Resistance Level.
Switching With Martingale, Averaging and Hedging
Switching can be done with Martingale, Averaging, and Hedging. Where in essence is to close the old losses by opening a new position.
Martingale is a theory of probability management that allows the similarity of the value of something in a certain period to the previous period by using the principle of multiplying. In forex trading, Martingale Strategy is a strategy to gain profit while closing total losses from previous transactions through the doubling of capital.
Therefore, when using the martingale strategy the risk for the next transaction always increases with increasing losses. The rule of playing a martingale strategy is when you make transactions (n) lots and the result is lost, then the next transaction uses a lot of 2-fold (2n). Likewise, next. So when the last transaction is profit, the profit can cover all losses from previous transactions. To minimize losses when our position is opposite to the trend, and to maximize profits when our position is in line with the trend, we can use the Averaging Strategy.
Averaging based on the meaning of the word is averaging. In terms of opening a position, this averaging strategy is useful for averaging the opening price of the position. Where at a certain level, whatever the market conditions, the value of the position that we open is IMPAS. In trading, the meaning of Averaging is to reopen a new position in accordance with the old position even though the current price is moving opposite, in the belief that the market will soon move in accordance with our predictions.
Hedging is usually done when the position we open experiences a loss. So that the losses do not get bigger, we key with this hedging technique. So next Hedging is also known as Locking (locking), because when we use this hedging technique we locked the position that makes the value of profit and loss always move hand in hand.
But of course the above models need special skills. Need to learn and understand how it works.
The closing lesson of this time should be known, most beginner investors who do not have the skills, stubbornly holding back losses when the losses are still small. They reasoned would get out with a minimal profit. They continue to wait and wait and hope that the loss will be a profit. But unfortunately the costs incurred are also quite large. So stop loss is very useful here to limit ourselves and improve our trading discipline.