I got asked for some advice a few weeks back by one of our readers in Kentucky who was caught in a long AUD/USD trade at 1.0250 and was feeling some serious pain, with the market trading back below 1.0000. I certainly didn’t know where it was going to go, but as always I gave the simple advice to reduce the position to a manageable level before the loss gets out of control, and then try to trade out of some of the loss.
From there the spot price fell to .9575, which would have totally cleaned him out, but because he had reduced his exposure he did not need to panic and managed to buy some near .9660 as the rebound began.
To cut a long story short, he still lost a bit of money overall but it was very manageable in the end and he finally exited the trade overnight near .9970, a happy man.
Moral of the story: Keep your positions small and if you’re going ‘all-in’, keep stops very tight on the majority of the position. If position sizes are manageable, then the tendency to panic is greatly reduced and it gives you the freedom to trade in and out with market swings.
