Lock and averaging: the key principles of work

With the development of financial markets, more and more different types of trading strategies appeared. Some part of them has reached our time, and some have been forgotten long ago because of the transformation of the market itself. The principles of trade were formed under the influence of market trends, market activity, its phase, as well as the general laws that Dow formed in his theory.

Today, these techniques have changed and transformed into some types of trading systems or have become non-standard ways of conducting fix api trading on the forex market. Speaking about the non-standard methods of trade, perhaps, each comes to two conflicting ways of risk reducing:

  • PositionsAveraging
  • PositionsLocking

 

These methods cannot be called standard trading methods, but they allow you to conduct trading in a loss-making position, and also contribute to minimizing and limiting the risks. Therefore, if you are looking for risk management tools, these two non-standard approaches allow you to solve this problem.

Positions Averaging

This method consists in the fact that all trading operations that a trader performs are opened in one direction. Thus, at the time of receiving a loss in one trading position, a similar transaction with the same volume and in the same direction (sell / buy) is opened, as it is unprofitable. Thus, when the quotes unfold and go in the right direction, you can fix a break with a rollback of 50% or a profit for one transaction and a zero result for the second. If you do trade operations using averaging methods but with a large volume, this will already be applied to the Martingale’s trading strategy.

In order to understand the principle of averaging operation, I suggest you to consider a specific example:

The trader opened a deal to buy a financial tool in the fix apiforex market from the level of support for the Fibonacci grid (http://www.investopedia.com/articles/active-trading/022415/placing-fibonacci-grids-key-your-trading-strategy.asp) in 50%. However, this level was broken and quotes continued their downward movement. In order to not fix the loss, fix api trader opens another position to buy, but this time from the level of 23.6%. After quotes rebounded from this level and grew, the trader can fix the result in the no-loss zone or profit from the second operation. Personally, I recommend limiting losses to the exit in the no-loss zone.

Positions Locking is also called “Lock”

This technique also consists in limiting the loss on positions. The essence of this principle consists in fixing a certain loss percentage in order to further reduce it. If we talk about practice, the trader should open the transaction in the opposite direction from the unprofitable one. The complexity of this algorithm of actions arises at the time of exit from the lock. To do this, you need to exit at a profitable position at the most appropriate time in the turn. Locking is suitable for making transactions by algorithmic trading (http://forexzzz.com/product/forex-zzz-lock-arbitrage/), because it is the robot that can exit the lock with the most profitable for the fix api trader.

Let’s also look at an example to learn more about the principle of this technique.

The trader opens a deal for financial tool purchase in the breakdown of an important resistance level. However, the breakdown was false and quotes rushed down. Realizing this, the trader opens a deal in accordance with the trend (for sale) and thereby fixes a certain percentage of the loss (the difference between open trades). Let this difference amount to 20 points. This fixation occurs only on the chart, and not on the deposit balance. The trader holds two positions and at the moment of maximum reduction fixes his sale (profitable deal) expecting the price rollback. When prices roll back by 20 points, the trader will be able to close the loss on the first position, but the trading result will be 0. This allows you to nor permit deep drawdowns of the deposit and loss of investment capital.

Personally, I do not use these methods in my fix api trading because my strategy foresees an immediate exit from the bottle positions. But some traders successfully apply them in their trading strategies as a combination of money management.

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