How do you manage risk when the market suddenly turns against your position?
The first & most important is you must always trade with a stop-loss, an amount you don’t care losing if the trade goes against you. There should be enough money left in your account even after some losses. Then, ofcourse, you’ve always the option of closing a part of your position size if you feel like it’s not going according to your strategy.
Before you enter a trade, you need to plan your exit strategy in advance, like setting stop-loss orders, choosing the right position size, or using protective options, so you can quickly react and protect yourself if the market moves against you.
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I reenter with a larger position when the market suddenly goes against my initial position.
Using a very small initial entry, placing the larger position further away will give a better average price. The rarest form of price action in liquid FX pairs is one-way without a retrace. The key is keeping the initial position very small, so that a 3rd or 4th reentry would be considered a normal trade amount. Managing risk is keeping the lots small.
Ie; EurUsd short 0.02 lot @ 1.0505 (-$59), 0.04 lot @ 1.0690 (-$44), 0.08 lot @ 1.0950 (+$120).
It will depend on how far the price moves against me.
If it hits my stop loss, then I have no choice. If not, then I either do nothing or close the trade by hand if I dislike it. And await the next trade. There is always another trade.
My stop loss is where I decide before trading that I want to get out if the price moves against me. If my trade is stopped out, it must be where I want to be out. This is the purpose of a stop loss, of course?
I don’t do anything like @EmeraldEyes but he has good eyes.
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I do like this approach, but it takes a lot of patience, especially on the higher TF’s like daily charts.
For most, especially beginners, this is simple, solid advice,
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Well, I always make sure to set a stop-loss before entering any trade. That way, I limit losses if things go south. Also, it helps to regularly adjust your stop-loss as the trade moves in your favor to lock in profits.
I have found that the more often I do that, the more often a small retracement closes my trade (with only a small profit) and the opportunity cost is very big, because when there’s no re-entry signal I lose all the bigger profits.
For this reason I do worse, in the long run, if I do what you suggest above.
Am I alone, in that?