Position Locking as a tool for risk control in trading
Stable trading in the financial market is not only about getting regular profits or high yields, but also about the ability to control risks. And if everyone can create a certain scenario of actions in the market, the task of controlling emotional impulses, which are expressed in increased risks, is not that simple.
Of course, everyone must control their risks based on the recommendations of the trading strategy, as well as the parameters of the working capital. However, let’s be frank, this is very difficult to achieve. That is why there are additional opportunities to control your trading operations. Such methods can be attributed to non-standard ways of managing capital and one of the most widely used in the fix apiforex market is locking of trading positions.
Locking (or trading lock) is the opening of an additional trading position to the one that already shows a loss on the trading account. Thus, a certain risk percentage is fixed. It is taken “under lock”, because if the quotes continue to follow the global trend, then for the first trading operation, we will receive more and more loss, and a profit for the second one. But despite this, the financial result will be unchanged.
Why to use this technique?
In fact, there are two key reasons why fix api traders decide to use this lock.
The first is that this method fixes the risk, and therefore the drawdown. If you are a manager and trade on the attracted capital, this approach will allow you to maintain the appearance of stability and the fact that the investments and capital are under control. But remember, in order to feel money profit, and not the paper one, sooner or later these transactions should be closed.
Well, the second, which results from the first, is the position management to fix a minimum loss. Thus, the trader opens the lock predicting that the price will reach a certain level, at which he will close the profit on the lock position and with risk reduction, he will close the loss with a smaller coefficient or even without any loss.
To understand the second purpose of the lock operation opening, I propose to consider an example.
Let assume that the trader has opened the sale in the breakdown of the support level. However, the breakdown was fake and instead of fixing the loss immediately, the trader did not close the position and let the loss to grow. When this value has reached a critical level (-10%), in order not to fix the loss above the average, the trader opened a trading operation for purchase. Thus, these -10% will be fixed in a certain lock. And if the trend continues to grow, then for the second operation will be at a plus, and on the second one at minus.
However, the second operation was opened with the goal not only to fix the risk, but also in the future profit. If prices rise, the trader sees the future level of resistance, which will set the level of profit-taking on future quotes. And when the cost reaches this value, a positive result will be fixed and the risk will be the same 10%, as the amount of capital will increase proportionally.
Then, there is only one losing position in the trader, which will decrease due to the fact that the resistance level has worked and the minus result is gradually reduced to -10%. Then, the trader can close the deal with less risk or wait for the rollback to the opening price of the trading operation in the fix apiforex foreign exchange market.
Such algorithms are also built into the work of some automatic trading strategies, which also make lock positions on the servers of broker companies. To this list, it is possible to carry speculative algorithms in the form of fix api arbitration strategies – http://forexzzz.com/lo/.
As you can see, there are additional scenarios of actions on the market when your trade shows a downward trend. However, I still remain true to the fact that you should limit the risk specifically to the amount of capital, rather than to manage losses. After all, what if after opening the second one, it also goes into minus? Or what if the trend continues after profit-taking? In order not to seek the answers to these questions, it is enough to simply establish risks and follow them. Locking is to be used only in algorithmic trading strategies.