There are many bad strategies flying around that people think work perfectly fine. Some of them can force you to lose more that you gain, especially if you do not trade with negative balance protection brokers. However, we are here to help and let you know that in fact some strategies are definitely not good and you will want to avoid using them as much as possible. Once you understand the worst method in Forex, you will be able to develop another approach that will do the exact opposite before you run out of money.
Learn First, Act Later
By learning about Forex strategies you will surely increase your benefits over time, the more you know the better you will do for sure. The worst technique there is the one called “averaging down”. This abomination consists on purchasing more stock of what you obtained in the past as the initial price goes down.
Sometimes traders buy goods in order to diminish the original price they got at the beginning. Investors that lack experience do this and purchase goods in order to reduce the average price. This weird system is not often useful, it could be compared to burning good money to get bad one. Actually, it increases the loss if shares continue to diminish. It is important that you keep in mind that even though a share is expensive at a given time, it does not mean that it will remain that way or get more expensive. Nonetheless, we should see the mechanisms of this atrocity.
A Typical Example for Newer Traders
As an example, let’s imagine that you purchased 1000 goods at the price of 390.
If the investor is a newcomer, maybe he would not experience a stop loss; also, the share price would then reduce to $320. Now you will see why this system is so useless. In order to be able to average down, this newcomer could get another 1000 goods for $320 in order to reduce the average cost of each share previously bought. Now the cost will be $355.
The price in fact, could go even lower; therefore, the newcomer would try once again to get more goods so he could diminish the price per share. Finally, the trader with no experience would be losing more and more money by trying to increase the price per share. It could be compared to a snowball effect. By getting stuck on a spiral like this, you can kiss all your money goodbye on a single price plumbing.
Understanding the “Strategy”
Let’s now say that this “strategy” is used for a collection of possessions. If this happens, in the end the money would certainly be owed to a terrible development, and a good performing asset would be sold instead. Then, the outcome is definitely horrible or probably the worst you can imagine.
By using this scheme and margins, the losses can go even higher, which is definitely a terrible situation for traders without negative balance protection FX broker, no one would want to go through for sure. The strongest issue is the fact that what a trader gets is shortened, and the price needs to go up a lot before we see any of our money back, if it even happens. When you buy a share and you see it going down step away while you still can and avoid wasting more and more on it. You should not get involved with a risk that is higher of what you are coherently willing to take, especially if it has the ability of destroying your goods and money so easily.
You would rather create a modest strategy by using useful procedures for your money. It is very likely that you will get way better results if you do that instead of using methods like the one described before. Also, we would advise you to trade with negative balance protection brokers in order to keep your money safe with any trading strategy.