We have all lost money in Forex, have we not..? It is just one of those bumps that happens every now and then that is hard to avoid especially when we are new to this business.. The truth is this, in Forex, the market is constantly moving. Not always you are going to be right. It really is liberating when we are right and in general we are right if we trade off the higher time frames, but the truth is we cannot be right all the time.. One aspect that we can control no matter what is risk and that is where you can actually make the money you lost in Forex back without big risk. In fact over the next couple of weeks you could even bring your account back fully if done right. But you have to stick to the plan..
Okay so, lets once again look at Forex as a whole, the market ebs and flows right, one week it is up and you may be bullish and the next week it sells off.. This is not rocket science, so many traders will say just trade in the trend and all is good.. Let me tell you now, they are wrong. This is because there really is no trend in Forex, especially with the Major currencies.. Instead it is markets ebbing up and down based on institutions making money.. So how do you get a piece when others lose so much, well that is where you focus on risk rather than profit.. Why, you may ask? Well because by controlling risk you will make money. Forget about how much money, just do it.
Okay so now down to my point on the ebs and flows, we all go into a trade easily yeah, the market either goes our way or not, you could use a tight stop, but instead have you thought on what the multi million dollar traders do and i am not kidding here, they hedge there bad trades.. I know that goes against the book and i will tell you why, the book in Forex is actually written by Banks and where do most banks make money in Forex, well from what, your loss.. Do you think that the banks do not hedge there trades when they go wrong, the truth is any good bank does. It is not science, it is mathematics..
Do the math, if your trading success is more than 6 out of 10 trades being right, then hedging trades that have gone wrong would in a sense give you a second chance. That second chance would then make the 6 out of 10 more like an increased odds of 9 out of 10. It’s is like going from 65% success of a good conventional trader ( going by the book ) to almost 95% success with a simple change on assessing risk.
Let’s take the traditional method of a tight stop and what the banks see when we lose and they benefit.. You sell at a major resistance, the market rally’s against that resistance it breaks higher going almost 50 to 100 pips against you trade. If you used a tight stop loss at 50 pips, you now have lost 50 pips.. The banks know this and expect the rally due to how they see the order flow.. They make bad trades as well, but instead of closing that bad trade, they hedge at where most people put there stop loss.
That way they trade your loss if you are a conventional trader. Now here this, if however you hedged your bad trade at say 50 pips, where you are proven wrong in the market then what happens, you get in on that rally, you hold your existing loss that you already made and carry it as far as you can until you see a major trend change. Once this happens you simply close you profit hedge trade and watch as in the next day or two that trade goes into less and less loss. I see it time and time again.. You can even put an order to hedge in case you are wrong the second time.. Does it really matter, no not really unless you are trading against a major trend or are selling at the bottom of daily charts or weekly charts, if you are wrong the chances of being wrong twice or three times is near impossible and so what if the third time you are, you take a small near 50 to 60 pip loss.. No biggy..
Tip – Always go into a trade knowing two things, what is my risk, what is my reward? I do this each time. Where will i be proven wrong. That is where most people put a stop loss, instead that is where i hedge my position with an opposing trade order. If it opens i will ride the opposing trade as far as the market moves, if it does not open go for my target.. As simple as that.. Just remember a stop loss hit is a loss, you can either take it straight away and take it later, i prefer to take profit later on my hedged position when i believe the market is turning back and holding and then using a dynamic opposing order to control risk further.
Sometimes the opposing order opens again as the market moves back and both trades are at around break even because of previous profit, however most of the time the market can move most of the way back to position before it may go against you again. Or it may even move past your position thus no loss at all with twice as much profit potential.. After all, a losing trade is not bad as long as profit of greater worth is already locked in.. Good luck..
Anyways, so you can choose how you trade, you can lose time and time again, but if you want to really make big money in this business you need to shift your thought forms. Instead of focusing on profit, focus on risk and watch as your account grows. It is not uncommon for me to have 6 to 10 trades open, half buys and half sells. Then later to have 5 as the market ebs back to one favour.. Then all i do is keep pulling orders down in the opposing direction above broken supports so that each close move to those trades locks in more and more profit.
By the way i am not saying to hedge as a trading strategy, i am saying to hedge when you are wrong. Considering i am right 7 out of 10 trades, you do the math and you can see why hedging the 3 trades is not a big deal to me..
Okay so now what to expect, when you hedge your bad trades, make sure to adjust stop loss as far as the market moves based on the higher time frames of say 1 hour or more. My average return with this method can be as high as 10% to 15% gain on the bad trade positions each month. And to think this is on my bad trades.
So, next time you put a trade in maybe you may consider hedging it where you normally would put a tight stop loss. Let yourself be wrongs sometimes, being wrong is okay. Let yourself have a second chance and let your account grow and get back those lost amounts that can hurt so much..
As an trader myself, I have been using this hedge stop loss method now for over a year, to date i have only let go of about 4 to 5 trades at a small loss of less than 100 pips, due to being extremely wrong, however considering during the year i have placed hundreds of trades, i think you can get get my point.. Go into a trade to make money, but learn to know where you will be wrong.