Best Choices to Handle with Loser Forex Positions
Introduction:

After minutes of opening position in Forex, the position will either be profitable or loser, you will see your equity increase or decrease according to position. opening a trade in the market of Forex is very easy and simple but sometimes the pair move against your trade or Simply your position make looses instead of profits and this is great test for your profession and strategy.

From profitable to loser trade:


Generally, any one open a trade it may go against his/her favor and then it would decrease the equity of account. Losses may deepen if your stop loss is set far from entry or according to your exit strategy. Sometimes, the trade may convert from profitable to loser or the opposite in minutes or seconds especially at the time of strong data.

Loser positions adverse effects :

When a trade begin to make losses our adrenaline work and adversely affects our physiological and emotional behavior and this an enemy for any trade, but all of this depends on trading profession and experience, below the common adverse effect of a loser trade position:
  • if you set a stop loss, oh, will the stop loss be hit, should I change the stop loss.
  • If you did not set a stop loss, oh, should I set stop loss now, or, my account equity allowed for more falling so why should accept losses.
Example of adverse effects of loser position:

Forex trader named “Khalid” opened live account and begin trading, he shorted EUR/USD at 1.3995, he believed that the pair will not break 1.4, so his stop loss was 20 pips only, his target was open but he thought that it may reach 300-400 pips, but the pair break 1.4, he changed quickly the stop loss and set it more far, the pair advanced up quickly, Khalid still thought that it is temporary rise, he changed the stop loss again, pair hit 1.42 without any retracement, his looses reached 210 pips and his equity is near to end…. Khalid account was wiped out in one trade, then Khalid exit the market and -as usual- of a loser trader words, damn for this market, they are stealing us, no, what a bad luck.

Choices used to minimize position losses
First of all, it is market nature to see losses in opened position, because every trade will begin of a loss which is the value of spread, but how to react with the position when the losses deepens, let’s explain below the important tips to handle with position losses.

Choice #1- Put stop loss:

The best way to manage risk in Forex is to put Stop loss for every trade, you should stick to your strategy stop loss, Stop loss must be put in positions you do not expect the pair will reach or the pair will continue against your trade if it hit the stop loss. You should take in your considerations the spread of the pair when putting stop loss.

When to use this choice:

When you have strong tested strategy which you examined it for at least 6-12 months, then you can be confident of its stop loss, confidence of the strategy will comfort you from changing the stop loss and making losses deepens.

Example of Choice:

Forex trader opened long EUR/USD position, 100,000 units, entry was at 1.3250, Target at 1.3350 and stop loss at 1.32, the Trader equity was :10,000 $ , the pair failed to rise and fell to 1.32, the stop loss was hit, the loss was 500 $, the loss deducted from the account became real loss, the equity became =10,000-500 = 9500 $, the pair continue falling to 1.3, this means that stop loss avoided account holder more 150 pips loss or 1500 $ loss.

Choice #2-close the trade:

The simplest way to deal with position losses is to close the position, which means that you accept the loss and this will deduct the amount of loss from your account money.

When to use this choice:

Sometimes surprised data or breaking of strong support or resistance areas indicates that the pair direction changed against your position favor for long time or you feel that the price will not return to your entry so the best way to avoid more losses is to close the position.

Example of Choice:

Forex trader opened swing EUR/USD position, long 100,000, entry was at 1.3250, Target at1.35 with no stop loss, the trader equity was 10,000 $, data of the euro was very bad after opening the position, Mr. Draghi (chief of ECB) hinted that there would be a rate cut for the interest rate of the Euro, the pair declined to 1.3150, the trader found that fundamental and technical supported more fall for the pair, the trader closed the position when retraced to 1.3180, with loss of 70 pips or 700 $, the trader decision was very brave as the pair fell to below 1.3 in the next weeks, the trader avoided more losses of thousands of dollars.

Choice #3-hedge the trade:

Hedging may be profitable but also very risky, entering long trade and then short trade or the opposite to minimize risk is not easy for most of traders, hedging is strategy for professionals, investment banks and funds managers.

When to use this choice:

Hedging is not easy strategy as most of traders thought, when hedging used by non professional to minimize losses then it will be two problems not one, the difficult of hedging is how to act after and how to close the two positions. Example below will clearly presents hedging.

Example of Choice:

An investment bank decided to buy 100,000,000 NZD/USD at 0.8450 with target at 0.88, researchers of the bank saw that reserve bank of New Zealand will hike rates soon and before most of the central banks, so their opinion was that long-term direction for the pair is bullish, but after 5 days Fed (federal reserve bank of America) surprised the markets and begin tapering the quantitative easing, the pair fell to 0.8350, researchers of the bank found that after new FED data, the pair will enter into bearish movement in the mid-term, the bank sell the same amount (100 millions) after the pair retraced to 0.84, the researchers suggest the fall will continue to 0.81 and that’s what really happened, the bank closed the sell position at 0.81 making 3,000,000 US $ as profit, the long trade was still losing -3.500,000 US $, the pair pushed up quickly and reached the target of 0.88, the bank made another profit of 3,500,000 with total profit of 6,500,000 $.

Choice #4- Open new trade in the same direction:

Sometimes, the pair seemed strong bullish or bearish but the retracement is from market nature, sometimes making new trade in the same direction of the first trade may improve your entry point and minimize the trading risk.

When to use this choice:

The confidence of the midterm or long term direction is the key for success of using this choice, when you use it well, you will obtain great results, but you should care that this method needs good understanding of risk management and your account should allow for multiple trades.

Example of Choice:

Forex trader is confident from fundamental and technical analysis that USD/JPY is bullish in the next weeks aiming to reach 104, the trader long 100,000 of USD/JPY at 102.5, the trader was confident that the pair will not break 101 anyway, the trader make conditional order to long the pair at 102 and another order at 101.5 with stop loss for all positions at 101, the pair fell to 101.30, the orders activated, the trader now had long 300,000 of pair at price 102, the pair then jumped and hit 104, the trade profit from 300,000 not 100,000 and from position (102) better than the first position (102.5).

Choice #4-Other advanced choices:

Sometimes experienced traders may use other methods or may be other financial instruments to deal with positions, some may use binary options, use fixed bet instead of making stop loss, others may use vanilla options, pay fixed premium for a contract, the maximum loss is the premium paid but profits is unlimited, but these advanced techniques will be presented in my next articles.

Conclusions
  • The best way to handle with any Forex position is to put stop loss in the right place.
  • If you found that the pair is not in your trade direction and no way to achieve the target profit then you can easily close the trade before stop loss hit.
  • Hedging is not for newbies in Forex, it is very difficult to deal with the opposite positions.
  • Sometimes, when you be sure from pair direction you can open new trade to improve your position entry but you should have enough money in your account to allow for multiple trades.
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