You may be wondering, `Why would David Jenyns write about the worst Forex trading strategy around?`
There are a couple of reasons:
First, to warn you about the worst Forex trading strategy, because you really don`t want to end up using this system.
Second, because once you know the worst possible Forex trading
strategy, the one that is designed to maximize your losses over the
long run, then you can reverse it to craft a strategy which does the
exact opposite. With what you learn from the worst Forex trading strategy,
you will be able to create a system that will produce some tremendous
long-term gains. The worst Forex trading strategy I`m referring to,
which is simply the worst Forex trading strategy I have ever
encountered, is known as averaging down. This horrifying Forex trading
strategy is the process of buying more shares that you had previously
acquired, as the price drops. Traders often purchase shares this way in an effort to reduce their initial entry price.
Only bad investors average down by buying shares of a sinking
assests to decrease their overall average price per share. This Forex
trading strategy is hardly ever effective, and is often like throwing
good money after bad. It also magnifies a trader`s loss if the share
keeps dropping. Remember, just because a share is cheap now that
doesn`t mean it`s not going to get any cheaper. However, let`s examine
how this devastating Forex trading strategy works. Say you bought one
thousand shares at $40. The novice investor may not have a stop loss in place, and
the share price falls to $30 dollars. Here comes the stupidity of this
Forex trading strategy — to average down the novice trader might by
another thousand shares at $30 to lower the average cost per share that
he`d already purchased. So, his average cost per share would now be
$35. Unfortunately, the share price may fall even further, and the
novice trader will again buy more shares to reduce the average cost per
share. They end up buying more and more into a share that`s losing
their money. Now, imagine this Forex trading strategy being applied to a
portfolio of assets. In the end, all the capital will automatically be
allocated to the worse performing assets in the portfolio while the
best performing assets are sold off. The result is, at best, a
disastrous underperformance versus the market. If a trader uses an averaging down system and uses margins,
their losses will be magnified even further. The biggest problem with
this Forex trading strategy is that a trader`s gains are cut short, and
the losers are left to run. My advice is — never average down. The
process of buying a share, watching it fall, and then throwing more
money at it in the hopes that you`ll either get back to break even or
make a bigger killing is one of the most misguided pieces of advice on
Wall Street. Never be faced with a situation where you`ll ask yourself,
Should I risk even more than I originally intended in a desperate
attempt to lower my cost and save my butt?` Instead, design a simple, robust system with good money
management rules. I can practically guarantee the results will be
better than averaging down. by David Jenyns
http://www.ultimate-trading-systems.com/forex.htm
| 
