Say you have $10k and trade let say a few trades a day… if you are patient and catch a currency at a low price and buy it, no matter how low it goes, eventually, it will come back up, if no huge thing happens in the economy. The only downside would be waiting for your capital to come back up and not being able to use the cash.
Shine some light on this please…
I wouldn’t try and do that if I were you. How do you know its a low price? What if your buying a currency that is a long term downtrend? You just hold onto it forever until your account goes to 0?
What if you buy after price rejects off of a 2 year high or something and spend the next 2 years selling off? Lets say you hold the trade for another 2 years until it comes back up to your entry… so you’ve wasted two years without your capital and earned 0% on your return best case scenario.
There is a reason real traders don’t trade like this.
I think you would be better off having a trading plan that states a exit point.
You shouldnt let your losses run not the way you describe, as you may be waiting several years in some cases for the price to come back … well depends on the time frame your thinking about.
But the saying goes cut your losses short and let your winners run. As far as im concerned this works i prefer having patience waiting for the trend to end so i can collect my profit.
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Yea, no problem, it will come back… someday. Hopefully not before the margin call hits.
Your scenario is fine if you are trading with no leverage, just taking your $10k and buying Euros, for example. They will never go to zero, so you’ll never lose all your money.
Apply leverage and things change dramatically. If you’re trading at 50:1 leverage, which isn’t at all unreasonable, a 2% decline in the value of the Euro against the Dollar would wipe you out.
Anticipating the question, why use leverage - because currency moves tend to be small on a % basis, especially in the short term. If you traded without leverage it really wouldn’t be worth it unless you were playing long-term trends, and even then it might not make a lot of sense.
The idea behind forex trading is to make a profit from your intial
investment, maybe a few % more than leaving it in a savings
account with a bank. (Hopefully a lot more)
If you did what you are suggesting you might as well just leave
it in a savings account & just collect the interest every year,
with no risk (As long as it’s not Northern Rock :lmao:)
I see, I did not take leverage into the equation. That you for that explanation. You seem to be VERY experienced with Forex trading.
PS: The RSS Feed on your blog is broken.
Seems to be working fine for me. Either version will do.