Significance of Knowing When to Quit in forex

Posted on December 12, 2009
Filed Under Day Online Trading, Forex | Leave a Comment

As much as you’ve probably heard how a lot of folks struck it big in the forex market, you’d also undoubtedly have come across the numerous horror stories from those who lost a ton of cash really quickly.

Depending on how doubtful you are you might either take these horror stories gravely, or not seriously enough. Either way the fact of the matter is that many folks do finish up losing cash in the currency exchange for a very simple reason : they do not know when to quit.

To explain what we mean, let’s go over a fast example. Say you have US$ 100,000 that you need to invest in the currency market. That’s not a tacky amount, and you figure that if you pick the correct investment, you could truly make a fortune.

So you glance at the market, and feel that using your US$ 100,000 to buy Aus$, which is at present being sold at 1.4244 Aus$ per US$, would be a smart idea since it appears to be quite high and the Australian greenback will often pick up shortly.

With that, you purchase into that currency, and you currently have Aus$ 142,440. Great!

Sadly, this is where things start to go screwy. Rather than the exchange rate improving, it actually does the opposite, and after 24 hours you find that it is now 1.4544 Aus$ per US$. At about that point, if you were to sell you’d end up losing a ton.

rather than selling and ending up losing, you choose to wait and hope that it improves. Come the following day though, you find the exchange rate has fluctuated in the wrong direction again, and is now 1.4554 Aus$ per US$.

At this point you figure that it isn’t going to get worse, and so you decide to hold for a while more. But what if it gets worse? What if it hits an all time low and you are stuck with the chance of losing over half your investment if you sell your Aus$? How long are you going to hold on to that currency though?

See, this is the difficulty with without knowing when to give up. Ideally, a knowledgeable investor would have outlined a stop order right at the start, doubtless for $1.4344 Aus$ per US$. That way, the moment the market started going the wrong way, you’d sell and be out of it.

Sure, you’d still lose some cash, but it’s way better than losing more than you ever anticipated.

sadly, plenty still end up doing exactly what we just discussed in that example, and hold on for far too long, with far too little reason to do so. End of the day, the choice is yours, but knowing when to give up is definitely one trait that will serve you well.

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