DEFINING RISK IN FOREX -2
April 26th 2010 00:00
Pic source: Wikipedia
The speed by which the prices of currency pairs are changing is one of the things that make Forex a very risky endeavor – and it would serve well a novice (like me) to be aware of this fact even before he decides to try his luck in this field.
Let me clear something here first. When I said “speed” I meant fast not slow. And when I said fast, I meant split-second fast.
Let’s try an example to further clarify what I mean. Let’s say you found yourself in a wrong side of a trade. Let’s say you shorted the EUR/USD pair, you are trading the short time frame, and every second that passes by - while you are staring in your computer monitor – you are losing money… those short green candles just keep on adding up on top of the one before it.
Then, suddenly, you saw a red candle form and it’s getting longer and longer – removing all the money you lost (because of those green candles) along the way. The red candle is getting really long quite fast, and in less than 2 seconds you are registering profits!
You were languishing at the top of the chart seeing your losses double or even triple for quite some time before this happened so you wanted to get out, to close your position while you are ahead – but you hesitated, you wondered whether you should add a few more profits before you hit the button. It was just a thought, it took just half a second for you to decide to forget additional profits… you quickly hit the button to close your open position and the computer responded right away. Your position was immediately closed.
But in that instant that you hesitated, a green candle has formed beside the red one that brought your position to profitability – and by the time you close your position the green candle has already brought back your losses once again.
You’d be quite lucky if, by the time the computer responded to your request, the green candle hasn’t reached above the beginning of that red candle yet. The preceding candles sometimes come back down again to give you some profits, but oftentimes they just leave you with your losses.
There are, of course, quite a number of books and instructional materials that one can find to prepare in the Forex business.
But one should never ever get in there, unprepared.
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