Trading is not rocket science, it is common sense Â
They say a trader learns more from losing than winning but hopefully it is not to the extent that it wipes out one’s account.
I was asked the following question by a Global-View Trading Club member (posted with permission)):
I am long EURUSD above 1.10 and could you give me advice whether to hold on or hedge it. Last price is 1.0910 and I am long at 1.1012.
My reply: While my role is not to give specific trading advice, your question offers an opportunity to pass on some trading insights. I have outlined these insights in response to your question in the following:
1. Take the word hope out of your trading dictionary. When hope replaces sound analysis, then you are no longer trading but gambling. You are hoping for a miracle. Sometimes it works out but more often than not it you will wind up losing. There is also the opportunity cost of not trading while you agonize over a losing position.
2. Each day you need to treat your position as if it is a new one and ask whether you would be willing to go long (in this case) at current levels. If the answer is no then you have made your decision. The same can be said when you have a winning position but it is an easier decision as you can always protect your profit with a trailing stop. Your position is being marked to market even though your book equity may not be changing until you close it out.
3. Don’t hedge a loser if you are doing so just so you do not have to book a loss. Too many retail traders do this and wind up compounding a loser by putting themselves in a position where they are being forced to trade from the long side when the trend points the risk in the opposite direction. Think about it. You don’t want to book a loss so you are effectively trading the long side (counter trend) by looking to un-hedge the short side in an effort to improve your average. You are making trading decisions based on your hedge and not on what the market is telling you. More times than not you will wind up losing even more.
4. Needless to say this experience shows the importance of using stops so you can live to trade another day.
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