Almost all traders in Forex have heard about locking positions. However, having a clear idea about this technique is several times smaller. And there is nothing surprising in this, since locating positions or exposing locks is such an ambiguous technique that the opinions of even experienced traders regarding it are very different.
In this article, there will be no ready-made rules for installing and unlocking locks. We will summarize the three most common opinions about forex locks, and draw conclusions to our readers.
OPINION IS THE FIRST. LOCKING IS A PSYCHOLOGICAL DEVICE THAT CAN SAVE YOU FROM A LOSS
Locks when trading on Forex are used when opening positions without stop-loss. Instead of fixing the loss, the trader opens a position of equal (perhaps more or less) volume in the opposite direction.
Why is this done?
- First, some removal of psychological stress, the trader gets the time necessary to make a decision.
- Secondly, the loss is no longer growing.
- Thirdly, with a successful combination of circumstances and strict calculation, it is possible to obtain income from the use of the castle.
Now about this in more detail. Most often, locks are used by traders who trade using the Martingale method. It looks, approximately, as follows. A series of orders was successively opened. The pullback, which makes it possible to close the transactions at least to zero, was not. The price continues to go against the trader, and he puts the lock on the entire volume of orders. And again the question – why do this? As a rule, this is the only way to save a deposit from a full discharge. In addition, we get additional time, which can be used for deeper analysis of the market, depositing funds for the deposit, etc.
The installation of the lock helps psychologically. This allows the trader to “cool down”, to come to himself and gather his thoughts. It is possible that the next day the trader will “see” the market quite differently than at the moment when “everything went wrong”. Do not underestimate the importance of this moment. In poker, there is such a slang term – “tilt”. They are characterized by the psychological state of the player who, in a fit of desperation, begins to make thoughtless and stupid bets.
Forex traders often fall into the same “tilt”, without noticing it. Locking positions will give the trader a delay in deciding whether to close the loss-making position or adding money to the deposit if Margin Call is in the back. This is the main reason for installing locks.
Is it worth it to lock positions and how to do it correctly? It all depends on the situation and the practical experience of the trader. Be sure to understand that 100% working strategy for opening locks on Forex simply does not exist.
The main problem with opening a lock is that the trader, as well as the sapper, has only one attempt. If it is not successful – the deposit will be merged.
If you are going to apply locking positions, then you need to train on demos or cent accounts. For example, build a pyramid of orders against the trend and try to bring it to zero. Over time, you will begin to understand how this works, and gain the necessary experience.
THE SECOND OPINION. IT IS BETTER NOT TO INSTALL ANY LOCKS
To say that locking positions is some kind of uniform technique or trading strategy is meaningless. After all, we’re not talking about a technique or strategy using, for example, stop-loss. Someone uses them, but some do not. Similarly, with locks. Someone uses loki, some do not. And those who do this, do it differently, with different goals and, naturally, with different success.
That’s why talking about locking positions is necessary in relation to a specific situation. For example, take a wire martingale. Opened a large pyramid of orders against the trend, the price moves confidently against the positions, there is no correction, the drawdown increases with supersonic speed. You can set the lock. That is, to open a position in the opposite direction and volume, not less than the total volume of transactions opened before this, taking a break and going to rest and recover. But is it worth doing this?
To place a lock simply because you do not know how to proceed further – so it is worth to act only if the next step is the closing of all transactions and fixing the loss.
The main and most important rule of locking – the installation of the lock must be a weighted and clearly calculated trade decision.
Like any other trading solution, it must be based on market analysis and forecasting the further situation. If all of you have calculated and predicted correctly, there will be benefit from such a decision. If your calculations were wrong or, moreover, you installed the lock only in order to stop the growth of the loss – such a decision will make the situation only worse.
If you can not soberly assess the situation, clearly analyze the state of the market and make an accurate forecast – it is better not to put any forex locks. Very often it turns out that doing nothing is not the worst decision.
THIRD OPINION. THE BEST LOCK IS A LOCK FOR A LUCRATIVE DEAL
Many forex traders who have many years of trading experience in the foreign exchange market, use loks very rarely. These are consequences of negative experience of their use and deposit sinks.
In order to open the lock, one analysis of the market and a clear forecast for the currency pair is not enough. It is necessary that your forex broker has suitable conditions for this. For example, some companies do not have the ability to partially close a counter position, which greatly complicates the opening of the lock, especially if an even lock is used.
A mistake often occurs when a trader opens a locking order larger than the original positions in order to reduce the loss when the price moves against the initial orders. Such a castle is extremely dangerous. If the direction of the price changes, the situation will immediately deteriorate, and the loss will grow faster.
Also, many traders admit a psychological mistake. As soon as some lock deal shows profit, and there is a possibility that the price will not go any further, most traders do not stand nerves, and they quickly close the lucrative position of the lock.
As market analysis shows, recoilless (or with minor corrections) price movement in one direction more than 500 points are found only 1-2 times a year. To install a lock at this level, the drawdown on the account should be no more than 45%, otherwise there will not be enough free funds to open a counter order. Statistically, the probability of rollback at this level is several times higher. That’s why it’s better to “sit out” such moments than to install a lock.
Of course, you can install a lock without waiting for a recoilless trend of 500 points. But in this case, you will constantly be in limbo and deal with locks. In most cases, when you are morally ready to install a lock, the price will be on the verge of reversal.
The expediency of using lock positions on Forex is missing, as such. Whatever the situation with the currency pair, the alternative to the lock will always be a stop-loss or the usual “overstatement” of losses with averaging at important levels.
In addition, do not forget about swaps. If the swaps are negative, then such a lock will only increase the loss, and in fact on some currency pairs the swap size is very, very significant. Yes, one of the swaps can be positive, but even in this case the size of the negative swap will be larger, and the loss will still increase.
The only acceptable option for a reasonable trader is the use of the lock – this is his installation is not a loss-making, but a lucrative deal. When the open position gives a good profit, but the correction is close, you can put a lock instead of closing the transaction, thereby fixing the profit. At the moment when the price resumes movement in your direction, the counter order is closed, the profit on the open transaction earlier continues to grow. With such a lock, it is much easier to work psychologically than with a loss-making one.