If you've been trading for any length of time you ought to realize at this point that in fact all those periods constituting the dips on your trading equity curve are not that simple to get past without making some serious overzealous trading decisions only increasing the volume of a trader's loses.
This owes much to partially being the victim of what I choose to call the circle of trading disaster while not even consciously or subconsciously aware as is the situation is with a great deal of forex traders throughout the world.
Typically though, apart from some extremely foolish I-have-lost-my-trading-mind moments an instance of which was when I traded my Tuition on a 1:1000 leveraged account with a standard lot size and lost the entire money in under 5 hours, gigantic losses usually start out very small and probably last for some days allowing you feel hesitant to handle them quite simply out of the fear that the current market may very well turn eventually so you need not have to hand over any hard earned pips to the other trader just yet.
Usually when ever these small losses start ballooning out of what for absence of a better word I would like to call proportion, we start to develop the emotional attachment of a fools love for some cute woman with our losing trades, rarely ever willing to let them go (closing them at a loss), and always hoping for the best by acting against our best interests (adding even bigger lot sized position to hedge for losses quickly covering our already over dreaded losses).
Newbie and inexperienced forex traders ordinarily fall victim to this gross trading indiscipline when their stop loss targets tend not to have virtually any rational significance to them, this is often because most struggling traders do not use point of validity stops.
As opposed to just coining a number of static or perhaps even mathematically drawn up dynamic quit loss targets devoid of discretionary trading soul for example say, 20 pips whenever your primary technical indicator makes that little squiggle up there or may be 35.6 pips when its squiggles down here, a point of authority stop is based on wise reasoning and logic.
Alright, to drive this point home picture this instance, the EURUSD 30 minutes chart has pretty much turned from a transition to a mark up market cycle just after being in a smooth down move for the previous couple of days.
The Transition move itself you ignored for some good reasons but more recently the very first leg of that move has just retraced respecting the 23.6% Fibonacci retracement level an extra gentle push letting you in on the fact that this move might probably be worth some serious momentum.
The formation of a hammer candlestick right as the New York Session opened up accompanied by the an extended true body change of direction candle smashing through the 2 weeks major supply trendline would be good enough indicators for the average currency trader to open a long position, at least I would.
The problems starts off when for some reason price unfortunately turns around and just maintains going against you, if you were using some stop level you probably got directed to use you could potentially place the stop too within reach and cause harm to the trade too early and also if you place the stop further out than it needed to be, you risk losing a little more than necessary for this one trade, so what do you do?
Wise question, all the trading tools, gauges as well as dials in the above example in case you haven't realized are sound confirmations of the shift in market psychology, let's list and analyze them;
The Change from the mark directly to the mark up market cycle
The instantaneous stop and reversal of price move at the 23.6% fib retracement level
The instantaneous stop and reversal of price move at the 23.6% fib retracement level
The Sudden influx of Long orders right at the New York open additionally reinforces every skilled trader's assurance in the euro's steady appreciation that is justified by the ever increasing buys trades represented by a steady push up on the charts.
Taking all of this variables into mind in order to get into a trade only to lifelessly determine that the most space you're prepared to permit the trade to fruition is probably twenty - thirty pips is a little bit like trading in-justice, a person's misdemeanor simply being too biased on the subject of trade entry and rigid on trade management and exits which are all equally or at least even a bit more crucial to trading results.
A point of validity stop for our particular eur trade example will probably be something like a simple double zero psychological level below our opening price or the lower price channel trendline or even the two consecutive Fibonacci retracement level.
Most of these stops ensure that risks are unquestionably realistically calculated and set to present virtually any trade all the room it requires to ascertain or perhaps even disprove the accuracy of a traders charting and market study.
Trading will become kind of hands-free and 2nd nature as soon as you concentrate on spotting and executing the right trading setups promising high returns on investment presenting the lowest risk, and rigorously practicing the skill of flawless trade entry, execution as well as management.
Strategy jumpers represent a large portion of the victims of the circle of trade disaster which usually start off with the hunt for the Holy Grail forex trading system, then they demo trade the system so to say for a couple days and then move on to test it on a live account with real-money just to watch it gone within days. Dumping the system and telling themselves how they always instinctively knew that it just couldn't work due to its simplicity, it only might have managed to have a chance if it had been a touch more sophisticated.
Nearly all of the so called online automated forex trading softwares or expert advisors also run on the same rigid/dull method of risk/reward management which totally ignores discretionary attention to trade entries, management as well as exits.
The death circle usually starting out with tiny losses whose stops you fine-tune a tiny bit to accommodate price movements which feels like it is moving the wrong way somewhat unjustly by the way, leading to the escalation of your losses once you open more of the same trade position only now equipped with bigger lots to rapidly protect for losses when the market turns around only it doesn't turn, it only keeps moving more and more pips against you giving rise to really negative mind-set the like of which comprises greed, fear, anger and anxiety all in one unexplainable shot of mixed feelings, oh the feeling of pain most people tolerate for the sake of trading!
Equipping ones self with the right currency trading education is in fact among first steps to actually fighting the circle of trading disaster, trust me once i tell you that "Trading ignorance is certainly not bliss" contrary to whatever you may believe.
