How to Know the Right Time for Cut Loss in Forex
Good forex traders always know when to cut their losses on the market. Take profit early and allow losses to continue in anticipation of recovery is a mistake made by many beginner traders.
Detect Bad Trading
To reduce forex losses, forex traders must know how to detect and get out of bad trading, without involving emotions. Forex Trading near the reversal point is a sign that trading is bad. This trading is a sign of the length of the order placed on the pivot or psychological form of resistance. This may also be a short order which is too close to pivot or psychological support.
If a reversed candlestick appears in a chart pattern, this indicates that trading conditions may be bad. Even with just a little news from the currency pair we are trading, it can make the direction of the price move contrary to our trading, and that can be bad or loss.
Consistent with most currencies, this can also be a sign of bad trading.
Taking Action During Bad Trading
After detecting bad trading, you must take a step out of the transaction. Close the transaction immediately to cut your losses. In addition, you must try to recover from your losses by opening new transactions quickly. Because this tends to produce impulsive decisions that cause worse trading. You must assess the level of your loss, and try to restore it only if the market shows good opportunities.
Strategy to Escape
You also have to design an escape strategy for every bad trade. This can include setting the amount for each forex trade that you will continue to invest. This can also be a percentage retracement method which is that you set a total percentage of your total account and exit forex trading if the loss is at that level.
Placing a stop loss when a forex trader feels that the market is changing is a general escape forex strategy too. In an uptrend, many forex traders place their stop loss below the lowest swing. In a downtrend, they place their stop loss below the latest swing. Other traders stop when they detect areas of support and resistance for their trading.
A pretty good escape forex strategy is to use 2 periods of RSI. When trading is in a long position and the RSI drops below the 70 line, it is time to get out of trading. To trade in short positions, the ideal time to exit is when the RSI goes above the 30 line.
Some traders also design forex strategies for escaping based on a certain period of time. They still invest in trading for a certain period of time, and leave at the end of the trading day. The time period also comes to a thorough analysis of technical analysis tools and forex charts.