I’ve heard too many horror stories about people getting their fingers burnt or even blowing up their trading accounts by trading recklessly.
And I’m not just talking about the guys who trade at a tenner or £20 a point, regardless of what market they’re trading or the size of their bank. (You need to work out how much to bet on each trade based on your stop loss and how much you have in your account.)
I shudder when I think about the number of times readers have lost lifestyle-compromising amounts of money by betting on a hunch… without a rational reason for the trade and with no sign of a trading plan.
Trading shouldn’t be like playing the lottery, guys! It’s not about picking a number and hoping for the best.
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Learn how to live with your trade
You need to have good reasons for making a trade… and know how to live with that trade.
Planning a trade, deciding which direction to trade (long or short) and entering your position in a well-thought-out way is crucial.
That’s partly what Profit Watch Pro is here to help you with – to share with you some of my ideas.
But Pro is also about showing you how you can do this stuff for yourself (teach-a-man-to-fish and all that). I want to make you think about the things you need to consider before you press the trade button. And also how to manage a trade when it’s live.
Because as important as it is finding great trade ideas and entering them, there’s something even more important:
How to exit them – hopefully with a nice profit to show for it and a slightly bigger trading account, or at least with not too much damage done if the trade doesn’t go your way.
I want to look at that today.
Don’t you just hate this?
You do your analysis, draw the lines on your charts and decide which way you want to trade. You pick out a point on the chart where you believe the price could get to (target) and a point you want to admit defeat and take a limited hit (stop loss).
The trade moves straight out of the starting gate and into profit. So you leave it for a few days, something happens and the market reverses, wiping out your gains and triggering your stop loss for maximum loss.
Don’t you hate that?
That’s why it’s important to manage your trades.
When you open a trade you choose your target (reward) and your stop loss (risk) – or at least you should.
Now the golden rule is never to increase that risk. So you should NEVER move your stop loss further away from your entry.
It’s amazing how many people do. They see the price getting too close to the stop loss so they panic and move the stop loss another 50 points away. Now if you started out with a 1:2 risk:reward profile on your trade (say 50-point stop to 100-point target), suddenly you’re at 1:1.
That’s not smart trading.
But what I think is OK – in fact more than OK – is that if you see a trade is going your way, you can reduce risk by moving your stop loss in the direction of the trade.
Here’s a chart of the Kiwi dollar against the US dollar (NZDUSD) from a trade I did back in June:
My original stop (labelled 1) was at 6985 – 60 points below my 7045 entry level.
Then, when I got a bit of a move up, I shifted the stop up by 60 points to breakeven (2). As the momentum continued, I moved the stop loss another 60 points to 7105 (labelled 3).
And then I moved it a little more to 7185 (4), which was actually just above my original target on this trade.
Some people use automatic trailing stop losses. Here, the stop loss is automatically moved up by an amount of your choosing after the price has moved a certain distance. Your spread betting platform may have that option, most do.
I prefer to do it myself, judging the momentum of the trade and using support/resistance to choose my new stop loss.
The important thing is that you are reducing your open risk on the trade in stages until your stop is at breakeven and then, eventually you start locking in profit.
In the Kiwi example above, by the time I had moved the stop loss to stage 4, it was at a level where if triggered, I’d bank 140 pips (20 more than my original 2:1 target).
I had that 140-pip gain ‘locked in’ and I stuck with the trade to try and catch a further move. (In the end, the Brexit vote came in and I was stopped out.)
If you can trade like this and get to that sort of position – where you gradually lower your risk and then lock in gains by shifting your stop loss – it feels pretty good.
Of course, the quid pro quo is that by moving your stop loss, you are increasing the chances of being stopped out. So it’s a balancing act. You need to study your charts to see how the market you are trading is acting. And in doing so, you can choose when to move your stop and where to.
So if you have any trades open – or even on your next trade – give this a go.
Manage your position so that you can reduce risk where you can and hopefully get to a point where you can lock in some profits.
Reduce your risk, lock in profits.
As for the long EURGBP trade idea I sent out to Profit Watch Pro readers last Thursday, I hope you took my 30-day trial and got into that trade. You may well have got into it at a better level than I did, as the price pulled back a little.
For me, it’s a little too early to raise my stop loss just yet. I want to keep it where it is for now, below Wednesday’s swing low, hopefully giving me room to stay with the trade.
Still, it’s nicely in profit so far – and I’m happy with my stop loss and target levels.
We could well see this move around a fair bit ahead of the Fed’s policy meeting on Wednesday. So if you’re happy with your gains at any stage, take some!
Meantime, if you missed out on this trade, don’t miss the next one. I have a few good ideas up my sleeve right now.Get your name down today for a 30-day trial and I’ll give you instant access to our Pro members’ area – and I’ll send you my latest trade idea as soon as I make a decision which one to do next.
Take a look at what type of gains you can expect to see…
Download your FREE 'Three Essential
Forex Indicators' report today!
Inside your free report, you'll discover an easy-to-use guide to three technical indicators with the power to seriously improve your trading and change the way you make money from forex.
And, you'll also receive a free subscription to Profit Watch - the hugely informative forex newsletter that's an essential read for ANY trader, new or old.
I respect your privacy and will never pass on your email address to anyone else.
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