Sunday, December 16, 2007

Very, very ace :

"But let’s suppose you are different. You possess the patience
of a saint, you have the discipline to follow this rule inviolably.
Imagine the following scenario: You place a trade in
EUR/USD. Let’s say you decide to short the pair at 1.2500 with
a 1.2600 stop and a target of 1.2300. The trade is going well.
The price moves your way. EUR/USD first drops to 1.2400,
then to 1.2350, and slowly makes its way toward 1.2300.

At 1.2335 the price action pauses and the pair starts to
inch back up, first trading through 1.2350, then 1.2375. You,
however, are patient. You have nerves of steel. You hold on,
looking for your 2:1 reward-to-risk. The price starts to move
back down and you are starting to feel vindicated. Back to
1.2350, 1.2325; slowly but surely you see the target in sight.
1.2320, 1.2310, 1.2305. Your take-profit order sits on the platform
waiting to be filled. The price ticks a few more pips
down, reaching all the way to 1.2301 — but then it bounces
back, first slightly, then violently, until in a matter of seconds
it’s at 1.2350, then 1.2370.

You remain calm. The price nearly touched your target. It’s
bound to test that level again. You won’t make the same mistake
others make of cutting your profits short. You will stay
in the trade and follow the classic money-management rules.
Of course, the price never does see 1.2300. Instead the
pair “verticalizes” and soon reaches 1.2600, easily taking
out your stop. You are now faced with the idea that you had
a 199-point profit and allowed it to become a 100-point loss.
Welcome to real trading..."

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