Making Decisions During Bad Trading
When a trade goes bad, it is always difficult to decide what to do
. At that point of time during trading, there is always emotional investment in the trade that plays an important role. It is always bad to have capital loss at stake but it is our reaction to such situation that brings about disaster.There are a few choices you can take when meeting a bad trade:
1. Exit your trade and take the loss like a man
2. Hedge the trade
3. Allow the situation to remain the same and hope for a recovery
4. Move your stop loss closer to price action
I certainly hope that you do also opt for option 3 as I do not believe in miracles in FX and that out of 10 times, I could say that those 10 times it ends up a disaster. Exiting your trade at the right time when things goes awry stops the pip bleeding and also relieves you of your emotional agony.
You can then go on to look for other opportunities where you could profit but beware of revenge trading which I hope you dont get into for the sake of recovering back the loss youve experienced. Hedging is quite a tricky method to apply as you have to be experienced to do so. Cause it may backfire on you where you might end up losing on both sides of the trade should the market range.
The worse of the lot is to allow your trade to continue the same way and hope for a comeback. You have no control of the market and exposing yourself to too much agony will affect your logical thoughts. But if you have a stop loss in place earlier, it should be within your risk level threshold.
Moving stop loss closer to price action is a great idea but you should not be tempted to do just because the price is closing in on your stop loss. Moving of stop loss should be based on a planned exit strategy that matches your trading strategy and market condition beforehand. The moving of stop loss is preferably decided by the market forces through price action or indicator based movement.
That way, you remove any emotional attachment in deciding how you want to move your stop loss and that you allow the market to ride out the storm by itself within your control due to your planned exit strategy.
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