Locking Strategy In Forex, Implementation and Its Benefits For Traders
Locking Strategy in Forex – The forex traders are still a few who consciously cut loss when their loss reaches the risk limit. In contrast, traders are more likely to use the strategy of locking or hedging when losing in the forex market.
In this discussion we will explain to you all about the strategy of locking or hedging that is more widely used by traders. Is it true that this strategy can benefit the traders who apply it or just a strategy that has no meaning at all.
In order to answer that question a full explanation concerning the hedging forex strategy will be presented to all of you.
Here’s a further explanation.
Locking / Hedging
Actually explaining about locking or hedging is very simple, for example the case like this there is a trader who bought 1 lot EUR / USD at 1.39500 price range and then the price has decreased at the level of 1.39000. In this condition, the trader will suffer a loss of 500 points and to avoid greater losses trader had started to sell for 1 lot. In this way, the position held by the trader will be safe because the loss will remain in the range of 500 points.
From this explanation, as a trader you can lock the losses and do not aggravate the loss conditions obtained.
See More Locking or Hedging Strategies
We assume that a trader has a capital of USD 10,000 and with the scenario above, when the price declines to 1.39000 the trader loses 500 points. Thus his capital will also be reduced by 500 points.
When the trader has implemented a locking strategy, then wherever the price moves the amount of capital he has will not decrease and also will not increase.In that sense, when the trader above starts to open a 1 lot sell position at 1.39000 price range, then in this condition he has closed the buy position that has been opened previously.
The Pseudo Profits You See
Now we take another example such as the price began to decline to the position of 1.38500 and in such conditions when the position of the existing sell at 1.39000 is released then there will be a profit of 500 points.
Is that right?
Know that the profits you think you get are just pseudo!
It’s true that your profit of 500 points goes into your trading and balance records.However, try to be more careful and pay close attention to what really happened.
You still have a buy position in the range of 1.39500 that was originally opened.The position of buy you have is of course included in the calculation and with the price range decreased to 1.38500 position means you experience loss of 1000 points.
In conclusion, although the selling position you have is able to generate a new profit of 500 points. Things you do not realize the position of the buy also suffered a loss of 1000 points and that means your loss is fixed and no change at all.
A Hopes That A Lot Applied Trader
Continuing the example above for example after the condition above the price will move up to the position of 1.39000, then it could be break even. Or it could be the price will move to the position of 1.39500 or it could be higher. There are potential benefits to be gained here and should be put to good use.
Remember the forex market is not a movie scenario!
There is a very high risk therein, so you can not assume you are related to the next price movement. Price movements in the market are very difficult to predict and very deceptive especially for new beginners enter.
The more market is again when the market conditions are not what you want!
For example after the sell position is closed, the price will progressively move down and in this case means the greater the loss you will get. Do not expect price movements to match what you expect.
Based on the explanations we convey the strategy of locking or hedging is an action taken to lock the losses and the benefits you get. This means that price movements will not have a big effect on the profit growth that you will get. When compared to the cut loss, applying this strategy to trading can create a greater psychological burden.
However, the decision to apply cut loss or hedging back again is in your hands. If you feel confident with the decision taken and want to take risks, please just apply a hedging strategy. However, if you include people who do not really like burdened with the mental load to see the existing price movements, then immediately cut loss.
Thus the explanation that we can convey related to hedging techniques are mostly done by traders in the forex market. If there are explanations that make you confused or confused, you can ask us through the comments field below. We will be happy to answer any incoming questions.
We hope that the science and explanations we have presented above provide many benefits to the traders who read them, especially for beginners who will implement this strategy .