When to Cut Your Losses in Forex Trading?

When trading the Forex market, it is essential that you know when to cut your losses. In life some things are guaranteed, like death and taxes. Similarly, in Forex trading, you are guaranteed to suffer a few losses occasionally no matter how good your forex trading strategy is. Forex Trading Broker India

By being able to identify when it is time to get out of a trade, you can keep your losses small, which will in turn allow you to continue trading when the market behaves as you predict. What separates the winners from the losers is how you handle those trades that run into losses. “Cut your losses and let your profits run” is a very practical piece of advice which you should always stick to since one bad trade can wipe out your entire forex account even if you were just from a winning streak for the last one hundred trades.

How to know when to stop:

There are several methods that you can use in order to determine when to stop the trade, but they all have one similar component: acknowledging a specific point on the chart that represents when your analysis isn't correct. Open PAMM Manager Account

Determine the Bad trades:

The first duty of all Forex traders is to protect their capital investment. Therefore, even when you suffer a few losses, your Forex capital should remain significant enough to enable you to continue trading and possibly regain your losses.

To achieve this, you have to learn how to detect bad trades early enough before your losses turn into extremely large and unmanageable amounts. To achieve this, you have to learn how to detect bad trades early enough before your losses turn into extremely large and unmanageable amounts. For early detection, you can check on the following points:

Reversal Points:

If the trade is placed too close to a reversal point, then it is potentially a bad trade.

Resistance:

If the long order placed at a resistance level, that is potentially a bad trade.

Support:

If the short order placed very close to a support level, that may be a bad trade.

Actions to Take on Bad Trades:

Once you have determined that you are on a bad trade with no chances of reversal, you should act fast and decisively to limit the extent of your losses. There are different exit strategies which Forex traders use to exit trades.

Most well organized Forex traders have an exit strategy for every bad trade they find themselves in. A common strategy is using the percentage retracement method. This means that if a trade goes to a 3% loss level compared to the total amount of your Forex account, then it is time to exit.

Some of the exit methods include:

Limit orders:

A trader can instruct the broker to buy or sell a currency when it gets to a certain price. In this way, the trader avoids running into very high losses.

Stop Loss orders:

A very common method is to simply place a stop loss at a point that you feel represents that things are changing in the marketplace. For example, many traders will place their stop loss below the most recent swing low (in a long order) or the most recent significant swing high (in a short order). By doing this, you are forcing the market to change recent trends in order to take you out. It proves to you that the market isn’t going where you thought it was, and you need to step back and rethink your position. By doing this, you can take yourself out of the emotion of the moment and begin to clearly see the opportunities that may or may not be there. Forex White Label Solutions

Trailing Stop:

A trailing stop is a kind of stop loss order that shifts as your profits increase. You may set it to follow the price 15 pips behind so in case of a price movement reversal, you will automatically exit the trade only 15 pips behind your highest profit level.

Regards,
BlueMax Capital Ltd,
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