To receive new articles instantly Subscribe to updates.
How to manage a forex trade gone wrong
Written by: PaxForex analytics dept - Tuesday, 13 January 2015 0 comments
There are plenty of posts written on why you should trade forex and others which explain the advantages a successful forex trader will enjoy. You will by now understand the importance of learning how to trade forex before you start placing your trades. What many often forget is how to manage the trade once the order has been executed. Once an order is executed new traders will be faced with potentially the biggest problem: emotions!
It is very important to create a full trading plan as you analyze a currency pair which needs to not only include when to enter a trade, but also when to exit a trade. This is best done before a trade is placed because emotions have not affected the trade yet. Knowing how to react to both positive as well as negative outcomes is crucial when creating the action plan for each trade. Failure to do so often leads to big losses.
Those traders who have thoroughly planned their trade prior to entering it will have it much easier to manage it. They already have all scenarios outlined which means acting, reacting and managing the trade should be flawless. The problems arise when forex traders are unprepared when the trade is
already in their trading accounts and moves against them. This can also impact profits as premature exits will result in a decrease in trading profits.
So what should a forex trader do once a trade has been placed and there is no action plan in place? The first thing is to not panic and should emotions take over, walk away and calm down. After emotions have subsided and logic taken over the trader should sit down and analyze what went wrong since the entry point. Did a fundamental factor impact the trade or was it purely technical in nature? How far has the trade moved against the risk profile?
In case the trade has already violated the risk profile it is best to cut losses and exit the trade which should have happened if the trade was properly planned for and executed. In case the trade is facing losses, but remains inside the risk profile then placing the proper hedge or stop loss order is highly recommended. Trade management is crucial to the survival of a forex trader and sometimes it is necessary to adapt to the situation at hand. Avoid panic, stay calm and be reasonable when you approach a forex trade gone wrong.