Newbie saying hi from UK

[QL]

Hi all

Newbie here from UK, new to fx and just opened a demo account and going through school of pipsology as well as watching vids on youtube. I’m sure I will have lots of questions, so hopefully you guys can help

One question I do have right now is I’ve been playing around with trades on a demo platform, just to see how it all works…

so my question is: Does it ever work out, holding on to a significant loosing trade long enough to return to profit? So effectively playing the long game?

[tommor]

No, is the short answer. Actually, sometimes, by sheer good luck rather than good judgement. But luck’s not a strategy.

I can’t tell you what’s the best method for your strategy,only what I do. When I enter, I use the price chart to show me a level which, if price reaches it, would prove that what I thought was probably going to happen, is now probably not. At that price I set my automatic stop-loss order. However badly price goes against me, that order is never pushed further out. The size of the position is worked out in relation to the distance between entry and stop-loss, so that the maximum capital loss would not seriously damage my account and more importantly, neither would a string of similar sized losses.

Is this helping?

[fernan]

Sometimes it works, but as a trader, I learnt that you are also a risk manager, and you need to shield yourself for the worst outcome, always.

I personally don’t, because holding a losing position outside my risk comfort level could potentially increase my losses unnecessarily, compared to just cutting my losses earlier.

Also, think about the funds you have used to open the position. Waiting for your position to break even away from a loss could take days, months, even years. This means you can’t use these funds to invest in better setups you might find.

As you go through the BabyPips course, it will explain these concepts so you can avoid burning out your account on the get go.

Good luck!

[QL]

Hi tommor thank you for the reply. I think I’m still struggling with how the variables of equity, lot size and leverage interact with eachother.

If I’m understanding you correctly I think you are saying set a stop loss so that my capital is only at risk for a small amount say 1 or 2%. That way any loss is minimised.

[QL]

Hi fernan thank you for the reply, I understand your point that money tied up in a loosing trade can’t be used to back better trades.

[tommor]

The 2% capital risk rule is an old rule and was I think applied to equity trading, possibly over a long time-scale so don’t take it as gospel for every situation.

Your actual risk will have to reference your particular strategy but the principles will be the same - assume you will get an extended string of losses - calculate the maximum you can afford to lose cumulatively but still trade back to your original account size and then into profit - set the position size accordingly and respect the stop, i.e. don’t push it out wider just because price is moving towards it. Demo trading and using micro sized positions will help demonstrate the best tactics here.