Importance of Knowing When to Quit in forex

As much as you have probably heard how lots of folks struck it big in the foreign exchange market, you’d also undoubtedly have come across the numerous horror stories from people who lost a large amount of money really quickly. 

Depending on how skeptical you are you may either take these horror stories very seriously, or not seriously enough.  Either way the fact of the case is that many folks do finish up losing money in the currency exchange for a very 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 invest in the currency market.  That isn’t a tacky amount, and you figure that if you settle on the right investment, you could truly make money. 

So you glance at the market, and feel that using your US$ 100,000 to buy Aus$, which is at present being sold at 1.4244 Aus$ per US$, would be an excellent idea since it looks to be quite high and the Australian greenback will probably pick up shortly. 

With that, you purchase into that currency, and you currently have Aus$ 142,440.  Great! 

Unfortunately, this is where things begin 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 finishing up losing, you make a decision to wait and hope that it improves.  Come the next day though, you find that the exchange rate has fluctuated in the incorrect direction again, and is now 1.4554 Aus$ per US$. 

At this time you figure that it does not go to get worse, and so you decide to hold for a while more.  But what if it does get worse?  What if it hits a record low and you are 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 issue with not knowing when to quit.  Ideally, a savvy investor would have defined a stop order right at the start, potentially for $1.4344 Aus$ per US$.  That way, the moment the market commenced going the wrong way, you’d sell and be out of it. 

Sure, you’d still lose some cash, but it is better than losing more than you ever anticipated. 

unfortunately, plenty still finish up doing precisely what we just discussed in that example, and hold on for far too long, with far not enough reason to do so.  End of the day, the choice is yours, but knowing when to quit is definitely one characteristic that will serve you well.

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