Importance of Knowing When to Quit in forex
Importance of Knowing When to Quit in currency exchange
As much as you’ve probably heard how plenty of folk struck it enormous in the forex market, you’d also definitely have come across the diverse horror stories from people who lost a lot of money very fast.
Depending on how skeptical you are you might either take these horror stories very seriously, or not seriously enough. Either way the fact of the situation is that many folk do end up losing money in the forex for a particularly straightforward reason : they do not know when to quit.
To illustrate what we mean, let’s go over a quick example. Say you have US$ 100,000 that you would like to speculate in the foreign exchange market. That’s not a shabby amount, and you figure that if you choose the right investment, you could really make a fortune.
So you look at the market, and feel that using your US$ 100,000 to buy Aus$, which is presently being sold at 1.4244 Aus$ per US$, would be a brilliant idea since it appears to be pretty high and the Australian buck will probably pick up soon.
With that, you buy into that currency, and you now have Aus$ 142,440. Great!
Sadly, this is where things start to go bad. Rather than the exchange rate improving, it actually does the opposite, and after twenty-four hours you find that it is now 1.4544 Aus$ per US$. At about that point, if you were to sell you’d finish up losing a ton.
rather than selling and stopping up losing, you choose to wait and hope that it improves. Come the next day though, you find the exchange rate has fluctuated in the incorrect direction again, and is now 1.4554 Aus$ per US$.
At this stage you figure that it isn’t going to get much worse, and so you choose to hold for some time more. But what if it does get worse? What if it hits an all time low and you’re stuck with the chance of losing over half your investment if you sell your Aus$? How long are you going to hold on to that currency though?
See, this is the difficulty with without knowing when to quit. Ideally, a knowledgeable financier would have outlined a stop order right at the start, probably for $1.4344 Aus$ per US$. That way, the moment the market started going the wrong way, you’d sell and be out of it.
Sure, you’d still lose some money, but it’s much better than losing more than you ever predicted.
sadly, many still end up doing precisely what we just talked about in that example, and hold on for far too long, with far too little reason to do so. End of the day, the choice is yours, but knowing when to quit is definitely one characteristic that may serve you well.
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