The best locking option. 3 opinions on locks on the market
Almost all traders have heard of position locking. However, the number of those who have a clear idea about this technique is many times less. And this is not surprising, because locking positions or placing locks - is such an ambiguous technique that even experienced traders have very different opinions about it.
This article will not provide ready-made rules for installing and unlocking locks. We will summarize the three most common opinions about locks on , and leave it to our readers to draw conclusions.
Opinion one. Locking is a psychological trick that can save you from a loss
Locks when trading on are used when opening positions without stop-losses. Instead of locking a loss, the trader opens a position of equal (possibly larger or smaller) volume in the opposite direction.
Why is this being done?
- First, some psychological stress relief, the trader gets the time needed to make a decision.
- Second, the loss is no longer growing.
- Thirdly, with a lucky set of circumstances and a strict calculation, it is possible to generate income from the use of the lock.
Now about that in more detail. Most often locks are used by traders who trade on The Martingale method. It looks approximately as follows. A number of orders were opened sequentially. There was no rollback allowing to close the trades at least to zero. The price continues to go against the trader, and he puts a lock on the entire volume of orders. And the question again is why do we need to do this? As a rule, this is the only possibility to save the deposit from a total loss. Besides, we get additional time which can be used for a deeper analysis of the market, replenishment of the deposit, etc.
Installing a lock helps psychologically. It gives the trader a chance to "cool down", come to his senses and collect his thoughts. It is quite possible that the next day the trader will "see" the market quite differently than at that moment when "everything went wrong". Don't underestimate the importance of this moment. There is a slang term in poker - "tilt". It characterizes the psychological state of the player, who in an impulse of despair begins to make thoughtless and stupid bets.
traders often fall into the same "tilt" without noticing it. Locking positions will give the trader a delay in making a decision to close a losing position or to add money to the deposit if a Margin Call is breathing down their neck. These are the main reasons for setting up locks.
Is it worth locking positions and how to do it correctly? Everything depends on the situation and the practical experience of the trader. It is necessary to understand that 100%-but a working strategy for opening locks on simply does not exist.
The main problem when opening a lock is that the trader, like the sapper, has only one attempt. If it is unsuccessful, the deposit will be drained.
If you're going to use position locking, you need to practice on demo or cent accounts. For example, build a pyramid of orders against the trend and try to bring it to zero. Over time, you will begin to understand how this works and gain the necessary experience.
Second opinion. It is better not to install any locks
It makes no sense to say that locking positions is a single technique or trading strategy. We are not talking about a technique or strategy using, for example, stop-losses. Someone uses them, and someone does not. The same is with locks. Some use locks, some do not. And those who do, do it in different ways, with different goals and, of course, with different success.
That's why it's necessary to talk about locking positions in relation to a specific situation. Let us take a grid martingale, for example. A large pyramid of orders is opened against the trend, the price is confidently moving against the positions, there is no correction, the drawdown is increasing at a supersonic speed. It is possible to place a lock. That is to open a position in the opposite direction and with the volume that is not less than the total volume of the deals that were opened before, taking a break, having a rest and recovering. But is it worth it?
Locking just because you don't know what to do next is worth doing only if the next step is to close all trades and fix the loss.
The basic and most important rule of locking - installation of the lock should be a deliberate and well-calculated trading decision.
Like any other trading decision, it should be based on market analysis and forecasting of the future situation. If your calculations and forecasts are correct, you will benefit from this decision. If your calculations turned out to be wrong or, moreover, you set a lock only in order to stop the growth of losses - such a decision will only make the situation worse.
If you can't soberly assess the situation, clearly analyze the state of the market and make an accurate prediction - then it's better not to put any locks. Very often it turns out that doing nothing is not the worst solution.
Opinion Three. The best lock is a lock on a profitable deal
Many traders with many years of experience in the foreign exchange market use locks very rarely. This is a consequence of the negative experience of their use and of losing deposits.
In order to unlock a lock, market analysis and a clear forecast on a currency pair is not enough. It is necessary that your broker has the right conditions for that. For example, some companies do not have the ability to partially close a counter position, which makes it very difficult to open a lock, especially if an even lock is used.
A very common mistake is when a trader opens a locking order of a larger volume than the initial positions, in order to reduce losses when the price moves against the initial orders. Such a lock is extremely dangerous. If the price direction changes, the situation will instantly worsen and the loss will grow faster.
Also, many traders make a psychological mistake. As soon as some lock trade shows profit and there is a probability that the price will not go further, most traders' nerves fail and they quickly close the profitable lock position.
As market analysis shows, a non-stop (or with minor corrections) price movement in one direction of more than 500 points occurs only 1-2 times a year. To set a lock on this level, the drawdown on the account should not be more than 45%, otherwise there will not be enough free funds to open a counter-order. Statistically, the probability of a pullback at this level is several times higher. That is why it is better to "wait out" such moments than to set a lock.
Certainly, it is possible to set a lock without waiting for a 500-point no-trend. But in this case you will constantly be in limbo and dealing with lots. In most cases, when you are mentally ready to put a lock, the price will be on the verge of reversal.
The expediency of using position locking on is absent, as such. Whatever the situation with a currency pair, the alternative to a lock will always be a stop-loss or the usual "sitting out" of losses with averaging at important levels.
In addition, we should not forget about swaps. If swaps negative, such a lock will only increase the loss, and in fact on some currency pairs the size of the swap is very, very significant. Yes, one of the swaps can be positive, but even in this case the size of the negative swap will be bigger, and the loss will still increase.
The only acceptable option for a reasonable trader to use a lock is to place it not on a losing trade, but on a profitable one. When an open position gives a good profit, but a correction is close, you can place a lock instead of closing the trade, thereby locking in a profit. At the moment when the price resumes the movement in your direction, the opposite order is closed, the profit on the previously opened trade continues to grow. It is psychologically much easier to work with such a lock than with a losing one.