FOREX THEORY
What Should You Do?
When faced with a possible retracement
or reversal, you have three options:
-If in a position, you could hold
onto your position. This could lead to losses if the retracement turns out to
be a longer term reversal.
-You could close your position and
re-enter if the price starts moving with the overall trend again. Of course
there could be a missed trade opportunity if price sharply moves on
one-direction. Money is also wasted on spreads if you decide to re-enter.
-You could close permanently. This
could result in a loss (if price went against you) or a huge profit (if you closed at a top or bottom) depending on
the structure of your trade and what happens after.
Because reversals can happen at any
time, choosing the best option isn’t always easy. This is why using trailing
stop loss points can be a great risk management technique when trading with the
trend. You can employ it to protect your profits and make sure that you will
always walk away with some pips in the event that a long-term reversal happens.
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