This article looks at how forex training can teach a trader how to identify and manage bad trades.
Forex training is highly recommended for any beginner trading as it assists in gaining a deeper understanding of the forex market and all the associated aspects. However, one of the most important aspects of a forex training course knows when to cut your losses and leave a bad trade. Furthermore, the trading course should teach individuals how to detect a negative trade and what to do after the negative trade has been completed.
Identifying bad trades
Bad trades display four distinctive characteristics which should be aware of. In fact, an enlightened trader will be able to identify the negative trade via these common indictors:
- One indication of the trade being bad is that it will be placed too close to a potential reversal point. Negative trades with long positions will be placed at the resistance level, and short position trades will be placed near to the support level. When this is done the trade will display higher degrees of risk, lower profit margins and a greater chance of trade loss.
- If there is an appearance of a reversal candlestick chart then one can assume the trade will be disadvantageous. Often this indicator will include a short trade bullish reversal and long trade bearish reversal.
- News releases are optimal indicators of disadvantageous trading. If a release indicates a market movement against the open position, one can expect losses. It is important to note that having open positions during news releases is highly risky and can bring about major losses as the market will usually swing according to global events.
- Losing trades will generally occur if this damaging behaviour is seen in other pairs. For example, if you are trading a EUR/USD paring and are losing, the chances are likely other EUR pairings will be losing as well. If all relevant currency pairings are taking a dip it is best to avoid that trade.
Cutting your losses
When you have identified whether or not the trade is negative you must determine if it is worthwhile to cut your losses. Should it be a bad trade the recommended behaviour is to manually close the position and stop trading. You should not give the trade time to recover as there is a likelihood one may incur further losses. Also you should not trade in an attempt to regain losses as this will be an emotional trade.
Managing your losses with forex training
Once you have closed the negative trade one should follow two steps to handle the situation:
1. Analyse how the trade turned bad.
By discovering the mistake one will be able to learn from it. Check your trading plan and find the turning point which lead to the damaging event. Look for any indicators you may have missed and once you locate these indicators note them. By acknowledging them you may be able to prevent this from happening again.
2. Learning from mistakes.
Instead of forgetting about the bad trade, one should adjust the trading plan according and adapt your trading strategy to ensure this event never occurs again.