Importance of Knowing When to Quit in forex

As much as you have probably heard how plenty of people struck it big in the forex market, you’d also definitely have come across the various horror stories from those that lost a large amount of money really quickly.

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 case is that many folk do end up losing money in the forex for a particularly simple reason : they don’t know when to quit.

To illustrate what we mean, let’s go over a quick example. Say you have US$ 100,000 that you want to invest in the currency market. That isn’t a tacky amount, and you figure that if you pick the right investment, you might actually 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 a good idea since it appears to be pretty high and the Australian dollar will probably pick up soon.

With that, you buy into that currency, and you now have Aus$ 142,440. Great!

Unfortunately, this is where things begin to go bad. Instead of the exchange rate improving, it actually does the opposite, and after 24 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 day after though, you find that the exchange rate has fluctuated in the incorrect direction again, and is now 1.4554 Aus$ per US$.

At this point you figure that it isn’t going to get worse, and so you choose to hold for some time more. But what if it gets worse? What if it hits an all time low and you are stuck with the prospect 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 problem with not knowing when to give up. Ideally, a knowledgeable investor would have outlined a stop order right at the start, probably for $1.4344 Aus$ per US$. That way, the second the market commenced going the wrong way, you’d sell and be out of it.

Sure, you’d still lose some money, but it’s far better than losing more than you ever anticipated.

sadly, many still finish 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 certainly one feature which will serve you well.

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