A lock (or locking a position) is when a trader does not close his unprofitable position but overlaps the opposite one. For example, he opened a deal to buy at a price of 1.16243. Then the price went down, i.e. against him. And at the level of 1.16224, the trader opens a sell position, NOT CLOSING a buy position.
The result is a “fixation” of the current loss, but without closing the loss-making position:
- if the price goes up, the situation with the purchase transaction will improve, and with the sale transaction it will worsen;
- if the price goes further down, then the increasing loss on the purchase will be blocked by profit on the sale.
In fact, this lock (or lock) is just a stop loss but postponed in time. Applying to lock, the trader “disagrees” with the loss and is going to wait out the “unclear situation”.
You will probably see on the Internet that locking is supposedly considered a “chip” of experienced traders and that they say they use it. However, the use of locking ALREADY indicates that a person assumes a certain “clear” situation in the future when he will “understand” the further price movement. Alas, this approach already speaks of inexperience, lack of professionalism and a lack of understanding of the essence of earnings through trading.
The logic is this: “now I will block the unprofitable position because it is not clear where the trend is going. And when it becomes clear – I will exit the castle and make a profit. ” Ok, here is an example when, at first, “it is not clear where the trend is”, and then “it is clear”.
The approach implies the same “predictor” mentioned at the beginning: the trader expects the chart to give him certainty about the future, i.e. when it’s clear what will happen next. What professional approach can be discussed then? 🙂 Indeed, in essence, such a trader does not take into account the current situation (upward trend, then it probably will continue), but his own expectations (upward trend/price rebounded from the level/indicators crossed, then the price will go up, and I will trade there ) Yes, he can guess with a further direction. But how far does the price go? Will there be enough to cover his loss? But no one knows. What do you think yourself, can a person with this approach (when he himself is not clear on the way out of the deal) earn stable income?