In trading, when the market trend is opposite to the trading order, or when data-driven market conditions cause the account to suffer rapid losses, many traders do not understand why they still face the risk of a margin call even though they have hedged the risk with a locked position. The response from experienced traders is that locking a position is a risk control method, but it does not mean it is foolproof. To reduce trading losses, the premise is to have a correct understanding of locked positions.
I. The Correct Application Scope of Locked Positions
For trades that have already incurred losses, locking a position is indeed a better response strategy, but the risks involved should not be overlooked. For example, how to offset the positive and negative to reduce losses is very challenging and tests the trader's skills in actual trading operations. Because locked position trading can easily disrupt the trader's original thinking and numb their awareness of risk, leading them to believe that trading without a stop loss is not a problem, or to develop the wrong mentality of just locking the position if they lose.
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However, the core logic of locked position trading is to hedge risks. It is a short-term proactive risk-avoidance behavior aimed at avoiding the impact of short-term market fluctuations, but it does not lock in losses from the trade. For experienced traders, locked position trading is an effective means of profiting in a volatile market.
1. In the case of a quiet market and a judgment of a range-bound trend, traders can open an equal amount of buy and sell orders at any position within the range, and close one for profit and set a stop loss for the other when it approaches a critical point, waiting for the price to return to the other end of the range. If the market trend becomes clear, there is no need to use the locked position strategy.
2. When a trade is profitable, if the trader believes that the price has reached a top or bottom and wants to continue to operate in the opposite direction to track this trade; to facilitate observation and tracking, and to lock in the profit part, the locked position strategy can also be adopted. Once the market reverses, they can respond in a timely manner. Since the situation at the time is profitable, a part of the profit can be used as new chips, making it easier to make objective judgments.
II. The Reason for Margin Calls After Locked Positions with Floating Losses
Locked positions with floating losses are a typical dangerous trading behavior of not admitting defeat, but in actual operations, there are very few who do a good job of locking positions. Many people know how to lock positions, but do not know how to unlock them, or become more confused as they try to resolve them. This leads to the subsequent unlocking operations accelerating the margin call of the account. In fact, the vast majority of unlocking is just to recover the principal, but it involves the risk of potentially incurring significant losses.According to the normal trading logic, a trading plan is essential before placing an order, and there must be a clear stop-loss position. Under a clear plan, suddenly choosing to lock positions is equivalent to directly abandoning the original trading plan and adopting an impromptu trading method, which naturally increases the risk of trading.
After locking positions, there are still many issues to deal with, such as whether to cancel the originally set stop-loss position? If the market moves in the direction of the original trading plan after locking positions, causing both long and short orders to incur losses, how should it be handled? Which order should be closed first, the profitable one or the losing one? How to deal with the remaining orders? A series of questions follow one after another.
The loss in trading has already exhausted the trader's body and mind, and the confusion after locking positions further increases the psychological burden, directly affecting the trading results. It is easy to lock positions but difficult to unlock them, which has become an indisputable fact in the industry. Mastering the key points of unlocking can reduce losses or even turn losses into profits.
III. Matters needing attention in unlocking strategy
If it is a volatile market, then close long positions at the upper edge of the volatility range and add short positions, and then close short positions at the lower edge of the volatility range and add long positions, which can achieve both long and short kills. If it is a one-way market, then close the positions against the trend first, and then close the positions in line with the trend.
Another point to note is that when traders make mistakes in judging the market, such as previously being a volatile market, the key position is broken and becomes a one-way market, or previously being a one-way market, suddenly encountering support or resistance and becoming a volatile market again. This situation may not only fail to increase the net value of the account after unlocking but may also reduce the net value of the account. To avoid these situations causing huge losses to the trader's account, traders must control their positions well during the unlocking process.
Ensure that after closing a position in one direction, the remaining position in the other direction does not occupy too much margin. Do not let the account suffer unbearable losses because the market takes a one-way direction after the unlocking is completed. Therefore, if the locked positions occupy too much margin, they can be unlocked in batches and gradually to reduce the losses caused by judgment errors to their own accounts.
IV. Summary
Those senior traders who use locked positions to achieve profits all have certain practical experience and analytical ability. However, for novice traders who have not yet achieved stable profits, it is recommended not to use locked trading if there is no good teacher to guide you. Stop loss should be done in the first place, and delaying again and again will fall into the dilemma of being forcibly closed or blowing up the position.
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