Almost all Forex market participants have heard about position locking. However, those who have a clear understanding of this technique are significantly fewer. This is not surprising, since position locking or setting locks is such an ambiguous technique that even experienced traders have vastly different opinions about it.
This article will not provide ready-made rules for setting and closing locks. We will summarize three of the most common opinions about locks in Forex, and leave the conclusions to our readers.
Opinion 1: Locking is a Psychological Tool That Can Prevent Losses
Locks are used in currency market trading when positions are opened without stop-losses. Instead of fixing a loss, the trader opens an order of equal (possibly larger or smaller) volume in the opposite direction.
Why is this done?
- First, it provides some relief from psychological stress: the trader gains time needed to make a decision.
- Second, the loss stops growing.
- Third, with favorable circumstances and careful calculation, it is possible to generate income from using a lock.
Now in more detail. Most often, locks are used by traders who trade using the Martingale method. It looks something like this. A series of orders has been opened sequentially. There was no pullback that would allow closing trades at least at breakeven. The price continues to move against the trader, and he sets a lock on the entire volume of orders. As a rule, this is the only way to save the deposit from complete loss. Additionally, we gain extra time that can be used for deeper market analysis, depositing additional funds, and so on. Moreover, setting a lock helps psychologically—it gives the trader a chance to “cool down,” regain composure, and collect their thoughts. It is quite possible that the next day the trader will see the market differently than at the moment when “everything went wrong.”
Should you lock positions at all and how to do it correctly? It all depends on the situation that has arisen and the trader’s practical experience. It is essential to understand that there is simply no 100% working strategy for closing locks in Forex.
The main problem when closing a lock is that a trader, like a bomb disposal expert, has only one attempt. If it fails—the deposit will be lost.
If you are going to use position locking, you need to practice on demo or cent accounts. For example, build a pyramid of orders against the trend and try to bring it to breakeven. Over time, you will begin to understand how it works and acquire the necessary experience.
Opinion 2: It is Better Not to Set Any Locks
It is pointless to say that position locking is some kind of unified technique or trading strategy. After all, we don’t talk about a technique or strategy using, for example, stop-losses—some use them and some don’t. The same applies to locks. And those who use them do so in different ways, with different goals and different results.
That is why position locking should be discussed in relation to a specific situation. For example, let’s take grid Martingale: a large pyramid of orders has been opened against the trend, the price is confidently moving against the positions, there is no correction, and the drawdown is increasing at supersonic speed. You can set a lock, that is, a position in the opposite direction with an appropriate volume, take a pause, and go rest, regain your composure. But should you do this?
You cannot set a lock simply because you don’t know what to do next. The next step will always be closing all trades and fixing the loss. So why delay?
The main and most important rule of locking is that setting a lock should be a well-considered and clearly calculated trading decision.
Like any other trading opinion, it should be based on market analysis and forecasting of the further situation. If you have calculated and forecasted correctly—such a decision will be beneficial. If your calculations turn out to be wrong or, moreover, you set a lock only to stop the growth of losses—this will only make the situation worse.
If you cannot soberly assess the situation, clearly analyze the market conditions, and make an accurate forecast, then it is better not to set any locks.
Opinion 3: The Best Lock is a Lock on a Profitable Trade
Many forex traders with many years of experience trading in the currency market use locks extremely rarely. This is a consequence of negative experience with their use and subsequent account losses.
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