More often than not, the most important and most perilous obstacle for a trader (after position entry, of course), is trade management! No matter where you are in your trading journey, you have probably experienced one or both of the following;
- You get stopped out for a loss only to see the market move in your direction after (and even get to your target!).
- You get out of a trade with profit only to see the market continue to move MUCH more than you assumed.
We have all been there. You are not being targeted. It is just the way the market works. We will lose trades we should have won. We will leave a lot more “on the table” than we wanted to. But what is most important, is managing our account. A market speculator with no equity is a mere SPECTATOR!
As I have highlighted in many-a-publishing, the biggest hurdle facing any trader is emotion – in particular – fear and greed. We, as humans, have a fear or losing. And we have a greed for more (greed is simply a fear of not having enough!). Whilst some level of both is advised in human existence, emotion should not be tolerated in trading!
Let the Loss Go
The quickest way to blow your account , is to constantly adjust your protection on a trade. You know exactly what I mean – “increasing your stop loss to let the trade breathe”.
Translated as: SCARED OF LOSING AND HOPING THE MARKET GOES IN YOUR FAVOUR
The whole point of a stop loss is to get you out of a bad trade! Have faith in your analysis.
This action tells you something about yourself. You are not comfortable with losing (you shouldn’t be trading. Take your money and run until you are ready to fight). But it also tells you that you have no resolve, which makes you a terrible risk manager. The mark of a true risk manager is the ability to stick to a limit on risk no matter what. The decision on how much to lose should be made BEFORE the trade is executed – not during!
If you are constantly monitoring trades and moving stop loss orders for more risk, when are you spending time doing the important things? Like enjoying the company of loved ones? I emphasise on traders setting their profit target and protection before taking the trade, as it gives you back your time (time is freedom) and takes emotion out of the equation. Don’t fear the loss. Embrace it. Learn from it. Move on.
Let the Win Run
But you will not always be on the losing side. As you get better, you will find consistency. As you begin to win more often, you will want to capture more and more pips per trade, naturally. This is when setting a profit target becomes less appealing. The better you are at something, the more you want to be paid for it! Plain and simple.
Greed, for lack of a better word, is good. – Gordon Gekko, Wall Street (1987). If you can control it.
Take it from me. If you can control it, this is a far better position to be in than that described in the last section. It is much easier on the heart to deal with a winning position than it is for a losing one. This is because what we are losing is something we are emotionally/sentimentally attached to.
This is a dangerous attachment that traders must lose to be profitable. Most traders see trading as a way to make money quick – rather than a skill that must be honed to gain financial freedom! They count dollars rather than PIPs (percentage increase in price). Once you start to treat the money in your trading account as “already lost” or “just a number”, it will become apparent that you are trading better with little effort. Of course, no one wants to lose that money, but it is a good way to look at it. It is just a number until you cash out!
So there are trade management tricks that can be used to make sure you profit from a winning move. And once you are out, let the “loss” go!
Multiple Positions: entering multiple positions for the same trade gives you the advantage of being able to set multiple targets. You can do any do any of the following;
- Enter two positions (for example). Set the first position to have a profit target (say, 3x Risk), and the other to have none. When the target is hit on the first one, your position is closed.
You can now choose to adjust the stop loss on the second position to break even (even if you don’t adjust your stop here, you are only going to lose a predetermined amount – the trade is profitable overall).
As the position continues to move in your favour, you simply adjust your stop to lock in more profit.
- Enter one position. When price reaches 3x Risk, manually remove a portion of the position (if you entered 1 standard lot, you could remove half perhaps). Adjust your stop as before.
- Enter multiple positions with multiple profit targets (3x Risk, 5x Risk, 7x Risk). This is probably more painstaking, as you will need to lock in profits for each one individually.
I hope this has been helpful. Happy trading!