Two Days Later - 48 Hours Later
USD/JPY - October 26th, 2006 - 1:30 PM EST
When we come back to our positions after another trading session, we start to see trends forming. In the USD/JPY example, there is a downward channel being established.
The first lesson that can be learned from following this position is what happens when one holds onto a losing position. If at first the position did poorly and did not meet the expectations set up in a trader's plan, it would have been prudent to re-evaluate that trade and close the position. This could have minimized the losses. Instead the position is now down 90 pips. There is an automatic method a trader can use to close a position that is moving against him or her, or in their favor. One can place a stop or limit orders that close positions when they reach a certain price. Stops and Limits are discussed in Lesson 2.3. Risk Management. Stops and limits may help take away the emotional factors of fear and greed when deciding to close a position.
A second lesson to be learned from the above image is that it can be risky to leave a position open without monitoring it. A 1 Lot position that has lost 90 pips can translate into a $900 loss and a trader that left his or her position open without proper risk management could easily suffer big losses.
Of course, this works in the other direction as we will see below. Our winning position keeps improving as the Dollar is doing poorly. We are also able to see the earlier candles and moves that we had studied in the previous pages of this lesson.
EUR/USD - October 26th, 2006 - 1:30 PM EST
We finish this EUR/USD example with the position up 125 pips, which equals $1,250 for our 1 Lot trade after about two full days of market activity. We saw the position move back and forth, and on the last trading session a short term uptrend formed that clearly benefited the Euro.
As we can see from these two examples, the Forex market has periods when it is quiet and calm, and periods of high activity. We saw the Dollar strengthen then weaken against two different currencies concurrently. We have also shown how closing a position depends on the situation, the trader, and his or her plan beforehand. What would you do next if you had these positions open? Would you close them right away, or would you wait to see if the trends will continue?
Well, you can see if you would have been correct by registering for a practice account, and using VT Trader to go back to the end of October 2006 to see what happened next.
We hope these examples provide you with some clarity on how positions move up and down, and how money can be made or lost trading Forex.
Last Modified: 2009/10/27 09:43:08