Cover On Approach
Tue, Apr 15“Cover on approach” is a trading strategy used by traders who hold a short position in a security or currency pair. The term refers to the action of closing, or covering, a short position as the price of the security nears a pre-determined level or target.
Typically, a trader takes a short position with the expectation that the price of the security will decrease. They establish a target price that they believe the security is likely to reach based on their analysis.
When the price of the security “approaches” this target — meaning it gets close to it — the trader will “cover” their short position, which involves buying back the security they initially sold. By covering on approach, they aim to secure their profits before the price potentially rebounds or changes direction, which could diminish their gains.
However, like all trading strategies, the “cover on approach” involves risk. If the price fails to reach the target and instead increases, the trader may face a loss. Therefore, it is crucial to implement risk management techniques, such as stop-loss orders, to mitigate potential losses when using this strategy.
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