It’s not often we get into the down and dirty of practical trade management in these updates, but we’re currently in a very interesting short position on the USDSGD right now that requires real world, real trading trade management.
Here is the situation: We’ve made money (we hit our first target) and we have open positions that are risk-free (that means we’ve moved our stop-losses to break even).
There is no question – it’s a nice place to be!
But price is retracing back towards our stop-loss and looks very likely to hit. “What’s the problem?”, you might ask – we’ve made money and there is nothing to lose? Entirely true. But trade management is really fear and greed management, isn’t it?
The best traders do not surpress these emotions. They expose them. They hear what each one has to say and then they stick to their rules.
Let’s have a look at fear, greed and trade management in the USDSGD, 4-hour chart right now:
Technically, the pair is screaming “DOWN”.
The current bearish flag formation is further confirmation that downside is likely.
But here is the rub: It looks like our break-even stop is going to be hit before the down-trend continues. So fear is scared of a loss, and says leave things the way they are. Greed says, widen your stop loss and try and survive the pull back, the market will eventually fall and there will be profits-a-plenty.
So what to do?
I put together a short video on it for subscribers this morning that I thought I would share.
I also want to highlight a potential third approach (also in the video). I mention this not because it’s my recommended course of action, but it’s great food-for-thought. We’ve already made money on this trade. What if we widened our stop-loss so that the maximum loss possible was equal to the money we’ve already made? That leaves us with two possible scenarios.
1. The trade hits its stop loss and the net, overall result is neutral (i.e., we don’t win, we don’t lose). We thus give up the profits we’ve already made.
2. The wider stop gives us the breathing room we need to survive the pullback and we hit targets 2 and 3 for a lot more profit.
Any other ideas?
Glenn Howell | PracticalPips