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Trade
Averaging in Forex trading
Many novice traders are not even acquainted with the theoretical side of the foreign exchange market, start trading. Who can not wait, and someone thinks that it already knows enough to decide to trading on a real account. At the same time, trade not rarely begins the averaging, while the speculator more about this method of trading and do not know.
First, novice traders say you need to use the foot that they will save the trade from theft. There is nothing left to beginners, but to listen to advice because his mind in Forex they have no experience. It soon becomes clear that people cannot just pick up and immediately begin to conclude lucrative deals, without having a clear idea about what the trading system. So often it begins to ignore the Council and tries not to close losing trades that appear in the work.
As a result, sooner or later comes the understanding that the price has gone too far negative and may not be back for a long time. In this case, there is a new transaction in the same direction as the previous one, conducted for the purpose of averaging the total score.
The technique of averaging
When we are in the trade already going on in the first place not even to make money, and that nothing to lose, not seldom referred to it this way. Let's consider an example. In Fig.1, we see that the trader from level 1 decided to sell the currency pair, hoping for a reversal. The price of the currency pair held above and a little down temporarily became to go back upstairs. When the price has reached the level 2, the trader began to understand what is clearly wrong with this deal and decides to get out of this situation, at least without loss.
To do this, it opens another order to sell at 2 by the same amount as the first. Now, it is enough that the market price dropped to 3, that the situation was resolved without losses for the trader. Before was opened only one trade, what price would need to reach level 1, that the speculator has not received damages. Level 3, as we have seen, is midway between levels 1 and 2. Thus, for price level 3 the first transaction will be closed with loss, and the second with a profit equal to the loss amount module.
This situation may be not only two deals, but with any number. As mentioned above, the objective of this approach is that the sum of all simultaneously closed transactions was negative. In the example above, the result was zero, but not all dealers do that, using averaging for profit, not only in order to avoid losses.
It is enough in our example, only a few to reduce the level of closing deals. Thus, the first trade will close with a minus, and the second transaction will be profitable and its revenue will cover the costs to the first position. More details can be found in Fig.2, and the closing level now indicated by 4.
Position averaging and martingale
Together with the averaging system traders often use achievements of the martingale. Note that the trading system was developed several centuries ago to play roulette. However, speculators have been able to use it on Forex. Briefly tell about the meaning, it is that in the case of a failed transaction to increase the lot twice.
When using the method in the game of roulette is as follows. People bet, for example, 1K on black and lost it. Then, he again relied on the black, but used 2K of money. If the second went bad, the player put 4K on black, and so on until you win. However, his profit was off all the loss, previously and even had money left.
The situation on Forex was the and the same the trader simply increases each of the following transaction in the amount, if predecessor still continued to descend in the negative. Lot increase allows you to bring the same level 3 to market price. In the example shown in Fig.1, we saw that the break-even point of the two transactions was just in the middle between the open two transactions, that is between the level 1 and 2.
If the second transaction would be open a lot in the two larger volume than the first, for closing both deals total to zero, it would be enough if the price has reached the level 5 in Fig.3. In this case, we would have a loss on the first transaction, but due to the fact that the second paragraph of the agreement twice first, then price would be enough to reach to close only up to level 5.
Not only it is possible to double the volumes of each subsequent transaction, but there are other options. For example, someone increases the lot at all during the first 2-3 transactions and then, if necessary, begins to increase the volume of the following items. Some use less aggressive changes in the volumes, not multiplying each time by 2, and increasing, for example, 1.2 times.Thus, the price can go 300 pips in the direction of loss from the first transaction, but it will be enough to return only points to 80, all transactions that have occurred with increasing a lot during these 300 points, closed without prejudice.
The reverse side of the averaging
On the Forex for many decades looking for an option that will allow without risking to make a profit. At first glance, the averaging is quite able to take on this responsibility. But if you delve into the study of the entire system of averaging, it becomes clear that there are and their perfidy, and moreover, not one.
1. First, the greater the distance between the agreements and thus less magnification of the position volume, the greater the price reversal is necessary in the direction of transactions to close the whole series without losing money.
2. Secondly, if you do the opposite and set the distance between the averaging open positions small, and a lot of this aggressive increase, the account can generally be nothing left if the price will go more minus no roll back in the opposite direction.
In most cases, you use a fixed or almost the same distance between each two transactions. In Fig.4 you can see an illustration of the options when the trades were opened with the distance of 50 points and a factor of 1.5. In Fig.5 aggressive trading system when the item increases more dynamically, and the distance between the agreements of 20 points.
Conclusions on the use of averaging
The appropriateness of such admission to trading disputes have been going on for years. There are proponents of this option to avoid losses, and opponents of the approach say that the system is very dangerous because it brings, as a rule, the interim losses to the traders, but completely eliminates the Deposit at one time. Ends this trade is that the market is virtually recoilless trend, which collects against all transactions speculator and takes them to minus so that the account does not have money.
As for my personal opinion, I believe it is in the first cargosystems for beginners who are still not psychologically prepared for the fact that their accounts can be losing trades, and for those who can't find other way to earn money but not to fix the damage at all. There are limited averaging, when a trader is already considering the installation option 2-3 trades but if the market goes further against him, he closes all positions at a loss.
The whole system looks like an attempt to recoup the unwillingness to accept the fact that the account will be lost. As a result, as a rule, the loss of the entire account becomes only a matter of time. Way of trading is dangerous but attracts people that until that moment, until a strong trend creates problems on account of speculator will only profit, so you need first to beginners.
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| Category: Forex | Added by: (30.10.2017)
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| Views: 288
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