Tuesday, March 13, 2012

Why Haven't I Been Doing This All Along?

Account balance: $79,562.32.

It's been a recurring theme in my trades that I go into debt before turning a profit. I realize starting in the hole is somewhat inevitable, as most forex brokers administer trades on leveraged lots. But I seem to go unnecessarily far into debt before posting a gain. Last night I traded for a profit of $500+, but at one point during the trade I was in the hole for -$1500. It can be nerve-wracking watching your account balance slip slowly downward, and all last night I kept thinking, "There must be a better way."
This morning I stumbled upon a partial answer in one of those "uh ... duh" moments. In my stock trading I never place market buy orders. I always specify a price. It's not merely to maximize my profits. Jim Cramer, of "Mad Money" fame, explained in one of his books how traders can get gypped with market orders. In essence, using market orders allows your broker--who really has no vested interest in your financial well-being--to choose the price for you.
Yet I've been placing market orders with my forex trading since Day 1. I did so mostly out of ignorance. With short trades I rationalized that getting in quickly was getting in properly. There's no truth to that though. It doesn't take that long to type in an exchange rate price, and as we all know being impetuous is a danger in and of itself.
Today I've been specifying the price of my entries, and it's been working well (to the tune of a $4,000+ gain). I'm still going into the hole a little, but not to the extent that I once was.
Creating specific entry orders is no panacea for an in-the-hole start though. Finding a low leveraged broker is really the way to go. The FXCM demo account has been great, but I might shop around before settling on them with my own money.
Timing is also a factor. In some cases, even when I waited for my indicators to line up, I still jumped to the gun on placing the entry order. Waiting until the tide fully turns and not just starts to turn may better my odds of getting out of the entry hole faster.

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