Talk about Bad Forex Trading Practices, Holy cow, check this out.
I was responding to a post on an online forum that was talking about how great it was to Scalp, Hedge and Average into losing trades. I couldn’t just let that sit without sharing my views on the topics, so here is what I replied to that with.
Click Here to see the original post.
“Here is what I have learned over the years with my own trading and as a coach working with hundreds of other traders.
Scalping (depending on your definition) is a strategy used by new traders, it is not a good long term ticket to success. I do not know a single Professional trader that uses scalping. But it has a purpose; I encourage my students to start out scalping to help them build experience in their trading. The more trades you place (in a demo account at first) the more you learn how the market moves, and you can get used to watching your trades going up and down, which can take the edge off of the adverse effects of trading psychology issues. The problem with scalping is that you cannot usually plan to have a positive risk:reward ratio. When scalping you are almost always going for fewer pips than you are risking and that means that you have to be right almost all of the time. Too much pressure and when you hid a draw-down period traders tend to panic and do crazy things like Hedging the position to avoid taking the loss.
Direct Hedging (which is not available on most brokers any more since Aug 1st, 09) is really only a way to staunch the bleeding on losing trades. Traders tend to think “I haven’t really lost until I actually close the trade” A direct hedge is like hitting the pause button on a losing trade, but you cannot avoid eventually playing it out. Even with a hedge you still have to find the best times to get out of either trade. You still have to determine where the most likely direction the market is probable to go, and if you don’t have some proven system with the probabilities on your side, you may be in a world of hurt. The other problem with hedging is you pay twice for the trade on the spreads and you will pay a premium on interest every day you are in the trade (paying even more on Wednesday).
Position trading is actually more of a time frame you plan on being in the trade than a strategy. If you are trading on the daily charts and expect a move to climb for a while, several days, weeks or even months, that is a position trade. AutoTrader1 stated it correctly that what you have described is a form of averaging. It is also known as the Martingale technique. Which can work for a while until it doesn’t and then you can get into some serious trouble. Beware there are a lot of automated strategies that use this method.
The best way to trade is to study and recognize patterns in the market that show a higher probability of success, whatever tools you use. Then figure out ways to capture more pips than you are risking on those trades so you don’t have to be right so often. Do the math on your tests and determine if each strategy is ultimately profitable. You do have to do a good job of journaling your trades to be able to do this effectively. I have found several of these strategies over the years, but I will save them for a different post in a different section.
Good luck in your trading and be careful of what you read.
Source : Jared Passey http://jaredpassey.com/blog/bad-forex-trading-practices/236/
