The reasons for the popularity of Forex are “you can make big transactions with a small amount of money,” “you have a chance to make a profit regardless of whether the yen is strong or weak,” “you can trade 24 hours a day, and you can make medium- to long-term investments”.
However, the word of mouth of those who failed in Forex was also conspicuous, such as “I lost a lot and became a debt hell,” “Ten million yen went bankrupt in a few days” … I was thinking about starting from now on. Still, I was scared. There is a lot of information that goes away.
This article introduced the commonalities and patterns of “people who fail in Forex” and summarized tips for those who want to start Forex from now on so that they will not fail.
The trick of FX is “large loss and small profit”! Earn experience and knowledge for a small amount at first
Do you know the word “loss, small profit,” often used in the investment world?
It means that “the loss is kept small and the profit is greatly increased to increase the total profit.”
The first thing to avoid is to focus on the winning percentage of the transaction. For example, if you lose twice in three trades, but one profit exceeds the amount of two losses, it is not a failure.
The case of “a big loss and a debt hell” introduced initially is an example where FX becomes speculative (≒ gambling), and you can not cut off the loss if you continue for a while. Such a failure is not a skill such as knowledge and know-how but a problem with the mindset.
It is essential to win and understand that there is always a loss and to take a stance of loss and profit.
With this in mind, let’s take a look at the “five failure cases” that FX beginners tend to make and their countermeasures.
Typical failure example 1 “I can’t stop-loss.”
“Stop-loss” is to settle the currency you have while you are at a loss.
For many people, the reason why they cannot cut the loss is due to the experience that “if the loss was not cut, the rate would return to its original state and be saved” and “immediately after the loss was cut, the rate would move in the expected direction and regret.”
Also, since the exchange rate has the property of moving up and down within a specific range, some people may think that stop-loss insurance is not necessary in the first place. Indeed, this idea is reasonable, and unlike stocks and virtual currencies, the dollar-yen rate does not continue to rise or fall to near zero.
If it goes up or down too much, each country’s governments and central banks will intervene. Therefore, the ups and downs of the exchange tend to stay within a specific range.
However, the strategy that does not require stop-loss insurance is limited to long-term currency holding (operation).
Stop-loss measures Make a stop-loss rule and protect yourself
There are two rules for loss cut.
Determine in advance the maximum amount of loss you can tolerate
The market price went against my expectations
Forex increases the money in your account by repeating wins and losses.
It is essential that “stop-loss = how to lose” is improved.
Stop-loss measures Stop order.
There are two types of orders: “Limit order” and “Stop order.”
A limit order is a pre-order that “sells” when the price goes up and “buys” when the price goes down.
On the other hand, stop orders are pre-orders that “buy” when the price goes up and “sell” when the price goes down.
For example, let’s say that the rate of the currency you bought for 100 yen goes down, and you set a stop-loss rule that says “sell when it reaches 99 yen”. If you place a stop order, it will automatically sell and settle for 99 yen.
You can forcibly end the gambling method of “keeping waiting for the price to rise without losing money even in the downmarket.”
Stop-loss measures OCO order.
For example, you can set both an OCO order that you bought for 100 yen but want to sell when it reaches 101 yen (profit taking) and you want to sell when it comes to 99 yen (stop loss).
At first glance, it may look the same as placing a limit order at 101 yen and a stop order at 99 yen, but in the case of an OCO order, if one is executed, the other will be automatically canceled.
In other words, if you sell for 101 yen, the different order “Sell when it reaches 99 yen” will be automatically canceled. This will prevent you from executing both a limit order of 101 yen and a stop order of 99 yen, and you can prepare for both profit and loss avoidance even when the rate is rough.
Trial order is one of the stop orders.
A regular stop order is an order that specifies the amount itself, such as “sell when the rate drops to the specified amount.” On the other hand, the trial order is also an order that “sells when the rate is specified and drops to the amount.” Still, the feature is that the specified price automatically changes according to the fluctuation of the rate.
For trail orders, if the rate fluctuates in a favorable direction after the order is placed, the price of the stop order will also follow the pace and be updated automatically. This allows you to stop loss on stop orders and enable you to take profits as the rate fluctuates.
Also, if the rate fluctuates in an unfavorable direction, the stop order price will not change and will be filled when the order price is reached.
Leverage measures Get used to it with a slight magnification
Leverage has not only advantages but also disadvantages.
If you are trading with high leverage, you may end up with stop-loss insurance.
For example, if you manage 100,000 yen with a leverage of 10 times as 100 yen per dollar, you are in a state of trading 1 million yen, and you have 10,000 currencies.
However, if the dollar becomes 90 yen later, this 10,000 currency will be worth 900,000 yen.
At this point, 1 million yen has become worth 900,000 yen, so you are losing 100,000 yen.
Since you are operating with 100,000 yen, in this situation where it will be 100,000 yen, all positions will be forcibly settled by the system of the Forex provider, and the loss will be fixed. This is the “loss cut.”
This time, I told you with easy-to-understand numbers, but the loss cut will be activated when the loss of about 50% of your funds is confirmed. The percentage to start depends on the Forex provider.
If the leverage was 2 to 3 times, the loss cut could be avoided. As you can see, influence has both advantages and disadvantages, so we recommend that beginners get used to it with slight magnification.