Here’s one of the worst Forex trading strategies you could ever use
A look at one of the worst trading strategies used by many traders
You may be wondering why we are talking about this trading strategy since it is the worst. Well, there a are a few reasons. The first is so that it would be brought to your attention so you don’t end up using it in the future. Secondly, after learning this strategy which maximises losses over the long run, you will be able to design a strategy that will help you achieve the exact opposite.
Averaging down: One of the worst Forex trading strategies around
The reasoning behind this strategy is that traders are advised to open more orders as the market continues to go against them. This is normally done by traders in a bid to cushion the effects of the losses and potentially increase profits exponentially when the market reverses in their favour.
Only traders with terrible money management rules will agree to use this strategy as it rarely works. Of course when it works, the trader will be very happy about the outcome but 9 times out of 10 it will fail and the trader has to close the trades at a point taking heavier losses or leave the trades and face margin call. You need to keep it in mind that there is no guarantee that the market is going to reverse in your favour anytime soon so why force it? Here is a demonstration of how this trading system works.
A trader buys 1 lot of EURUSD without a stop loss and comes back to see it has fallen 100pips against him. Instead of closing the trade to join the new direction of the market, he will buy another 1 lot. If the market reverses at this point, he will already be in $1,000 profit by the time the market gets to his initial entry price. If the market goes further down by another 200pips, he will be nursing a $5000 drawdown instead of the $3000 it would have been if he didn’t try to average down.
Now imagine a scenario where this is done across 3 or 4 pairs at once, the traders account will be on the verge of margin call depending on the account balance. Even if the account balance is healthy, the trader would be nursing thousands of dollars in drawdown.
Traders are advised to stay away from this style of trading as it is even worse than martingale Forex trading strategy. At least the martingale trading strategy involves closing the initial position and joining the new direction with twice your risk.
Unfortunately, this is what many fund managers that advertise their portfolio on Zulutrade and other social trading platforms do. With the averaging down technique you will hardly see a closed lost trade in their trading history while you’ll continually see smaller profits giving the unsuspecting subscribers the impression that the trader is very good without knowing that the “expert” is sitting on a total of more than 700pips for example on several open trades that are deep in drawdown!
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