How to protect your open trades
In this video:
00:30 – What do you do when you have a run of bad trades?
01:14 – Accepting the rough with the smooth
02:38 – It’s frustrating and hard to deal with
03:11 – Client makes 11% last week on her trading account
04:09 – Losing weeks are a part of trading
04:55 – Don’t go changing your system
05:24 – Stay away from the forums, control your emotions
How do you best protect your open trades to ensure that your winning trades don't turn into losing trades?
Let's talk about that and more right now.
Hi, Forex traders. Andrew Mitchem here, the Forex Trading Coach. Today is Friday the 11th of March. I want to talk about a really important subject, because there's nothing worse as a trader than seeing your trades in really good profit, you've got lots of trades on, let's say multiple trades all open, really good profit, you're doing well, you're happy, and then all of a sudden you might go off to work, or you might leave them open over night, or whatever happens.
Your winning trades have all turned into losing trades
You suddenly find that their all turned into losing trades or being completely stopped out. Really it's quite a gutting feeling. There's nothing worse as a trader, but unfortunately that does happen.
What can you do about it, because it really is quite an important subject? Really when you think about it you've got a few different type of options there.
Using partial closing
One of the options you have is called partial closing. It means closing a part of your trade, a proportion of your trade, when your trade gets to a certain level. It's one of the methods that I prefer myself. When I see a trade in profit and I see it get to a certain level, I can then look to say, “Well, I'm going to close part of that trade out,” so you might look at closing a quarter or a half of that trade and let the rest of the trade move up towards its profit target. The great thing with that is you capture some fairly good profit out of the trade.
At the same time, you then have options of course. What are you going to do with the stop loss? Are you going to leave it exactly where it is? Are you going to move it to protect the trade to make sure that it's a smaller loss if it gets stopped out? Are you going to move it to even? Are you going to move it to a guaranteed profit? Now, depending on the time frame of the chart that you're trading, and the actually length of the trade, and the profit target.
Moving the stop loss to lock in profit
One of the very nicest things you can do is to move the remaining position up into guaranteed profit. Even if the trade comes back and gets stopped out, you still make profit. When you think about it, mathematically wise is that the best thing to do? It's a little bit like people who always move to break even. It might be a feel good thing to move to break even, but really is it the very best thing to do? We'll come to that shortly.
First option is a partial closing. Second option is to close the entire position. Certainly we just close it early. You can do that if you wish to.
Should you use a trailing stop?
The other thing you can do is to use what's called a trailing stop. Now, a lot of people think a trailing stop's a really good thing, because it means that you're trading as your profit is moving up and up, you're bringing your stop loss with it. Again, it could be one of those feel good things. The thing I don't like about trailing stops is you're not actually moving your stop loss for a technical reason. You're just moving it up by a set number of pips as the profit moves further and further up.
The downside to closing trades early
The downside with all of these things when you start closing trades early is that quite often you can then close out really good trades way too early. You might make a small profit, or break even, or a small loss in what otherwise might have turned into being a very big profit and a very big gain if you'd have let the trade alone and let the market do its thing.
It's the catch twenty-two situation there. Which way do you go? Do you go for the feel good of locking in some profit and almost like …? Really it's about which option are you going to go for? Are you going to go for the feel good factor of closing some of the trade and locking in some profit, which feels really good, or are you going let the trade go into really good profit, potentially come all the way back and stop you out, or in other instances it might just come back a little bit, retrace, and then go again and hit full profit? That gives you the maximum reward towards trade. It's really something that you need to decide for yourself.
Have a set rule that works for you
One thing I would say is try to have a set rule. What they does is it takes emotion out of play. It takes that, “Aw. It's nearly there. I'm going to take it,” when it's really … you shouldn't take it in that situation. If a trades going really well, and you picked the right directions, in many instances you should just let it continue to the full profit target, rather than just manually closing early, just for a feel good factor.
Decide what works for you. Sometimes it will work in your favor and other times it won't. As a good example.
NZD and EUR Interest rate cuts this week
This week we've had the New Zealand interest rate cut and also the Eurozone cut, both quite unexpected. I got affected by it with a few trades that I had open that were in really good profit and then ended up getting stopped out. Some I did partially close, some I didn't. Sometimes whatever system or whatever strategy you use is not always going to work all of the time, but you need to decide the method that works the best for you.
Controlling your emotions as a trader
Decide what feels the best, what you're comfortable with, and which really helps to control your emotions the best within your trading.
A lot of trading, when it comes to these type of things, with stop losses, and profit targets, and seeing really good profitable trades or seeing losing trades, it all comes back to emotions and how you can best cope with that as a trader. If you can cope with those emotions, keep your risk low and look at your trading as a bigger picture, not just worrying about one or two trades, or even one or two weeks. If you can do that bigger picture thing, then that will really help your trading and take it to the next level. If there's anything I can help you with regarding your trading, any problems that you're having, send me an email, [email protected], and I'll talk to you this time next week.