Forex trading education - Trap 2: Improper Use Of Stop-Loss And Take-Pofit
You've placed a stop-loss order for 100 pips below the entry price and a take profit order at 100 pips above the entry price. The price drops by 100 pips, it arrives at the exchange rate for which you have set the stop-loss order, the stop-loss goes into action and the transaction is automatically closed. And as the transaction closes - the exchange rate goes back up by 200 pips. After two days you do a similar transaction, the market falls and the transaction is automatically closed at the stop-loss point, it drops another 10-15 pips and then rises again by 250 pips. At this point you are telling yourself: "If only i had moved the stop-loss limit a little lower, I wouldn't have gotten out with a loss of 100 USD, I would have come out with a profit of 100 USD". After a few times of this happening (and beleive me it happen a lot), you break and say to yourself: "For the next transaction I am moving the stop-loss limit another 20 pips, a total of 120 pips".
You start a transaction with the new stop-loss limit. The price goes down by 110 pips and then makes a u-turn and rises and you end the day with a profit of 100 USD instead of a loss of 100 USD.
You were satisfied - because you moved the stop-loss limit by 20 additional pips and you made money. Great!
The next day the exact same thing happens. And the third day comes the price drops and you move the stop-loss limit back to 150 pips and you make money! The fourth time it falls more and more and you move it to 200, 250, 300, 350 even 400 pips, and now you've lost 4000 USD. and you know that there is no chance the exchange rate will go back to it previously was.
You couldn't close the position at $300 so at $4000 your hand will tremble. In addition, you are certain that there is no chance that the market will continue to move against your position all the time.
Whats Next?
* Trap 3: deterioration
Or go back to the Education index
You start a transaction with the new stop-loss limit. The price goes down by 110 pips and then makes a u-turn and rises and you end the day with a profit of 100 USD instead of a loss of 100 USD.
You were satisfied - because you moved the stop-loss limit by 20 additional pips and you made money. Great!
The next day the exact same thing happens. And the third day comes the price drops and you move the stop-loss limit back to 150 pips and you make money! The fourth time it falls more and more and you move it to 200, 250, 300, 350 even 400 pips, and now you've lost 4000 USD. and you know that there is no chance the exchange rate will go back to it previously was.
You couldn't close the position at $300 so at $4000 your hand will tremble. In addition, you are certain that there is no chance that the market will continue to move against your position all the time.
Whats Next?
* Trap 3: deterioration
Or go back to the Education index
