Advantages of the StopLoss order before the strategy “Lock” or “Averaging” for a novice trader. Alexander Sivtsov.

The article will discuss the advantages of setting a StopLoss order, compared to the use of such strategies in trading as Lock and Averaging.

First, let’s take a closer look at the StopLoss order. The StopLoss is an order to a broker to conduct a reverse transaction (purchase or sale) on the current deal in the foreign exchange market upon the occurrence of a certain amount of loss. In other words, the order determines the amount of risk that a trader has laid when trading with a certain instrument. Many traders, especially beginners, often regard StopLoss as a pre-accepted loss, which exerts psychological pressure in trading, resulting in the majority of young traders starting to ignore the rules of money management and losing money. The fact is that this order should not be considered as a loss amount, but as insurance in case of a stronger movement of the instrument price against your transaction.

Strategy “Lock”

Strategy “Lock” – is the sequential placing of two different orders on the same trade instrument for the temporary fixation of a certain amount of the current loss before the onset of movement in the market, as a result of which this loss will be blocked. And, the result on the initial transaction will be equal to zero and even a certain amount of profit, and the second order will be closed with a plus.

The “Averaging” strategy

This strategy is the setting of two consecutive unidirectional orders with a certain step, with the second order being established when the result for the first order has reached a certain level of loss. The main goal of the averaging strategy is to reduce the result of the trade to the lossless point. But, often the result of this strategy is to obtain a significant profit. It is also often the case that traders combine the “Castle” and “Averaging” strategies in trading.

Advantages of the StopLoss order before the strategies “Castle” and “Averaging”:

1. When using the StopLoss order, the trader already takes the amount of risk, according to the parameters of the money-management. In the event of StopLoss, the trader evaluates his error and calmly decides on further trade. In the case the “Lock”, the trader needs to quickly reevaluate the situation on the market and not miss the moment of exit from it, in other words, open the lock, since the error in this case will lead to a greater drawdown of the deposit. Based on the reasons mentioned above, the “Castle” strategy should not be used by novice traders, but in the hands of a more experienced trader, this strategy generates solid profits with a minimum loss.
2. When using the “Averaging” strategy, in most cases, the first order is closed with a minus at the onset of a lossless point, while at the same time twice as much funds are used in trade as compared to using StopLoss. Also, when using the “Averaging” strategy, in the event of an incorrect market assessment, you can get a more significant loss. These facts show that the “Averaging” strategy is more suitable for an experienced trader. As a result of using it, losses are reduced to zero, against which it is possible to get the maximum profit in the process of trading.
3. In contrast to the use of the StopLoss order, the use of the “Lock” and “Averaging” strategies basically requires the trader to be directly present at the terminal. The final decision when using these trade strategies should be taken based on the current state of the instrument on the market and evaluation of new fundamental factors.

You can find another set of strategies on the company’s website in the section Trader’s Blog!

Alexander Sivtsov