This video looks at simple ways to manage your trades once in them. Managing a trade is when you adjust your stop loss or target once you are in the trade. I discuss when this can be done, and when it shouldn’t be done. I also discuss the trade-off between leaving your trades alone and adjusting your stop loss/target. There are pros and cons to both these methods. This is the sixth video, of six, in the Forex Swing Trading in 20 Minutes Course. See the other videos in the course near the bottom of this article.
Manage Trades, or Not?
For most traders, if you think of adjusting your stop loss or target once in a trade…don’t. Let the math of your strategy do the work. As long as you have a win-rate that allows you to make a profit with your typical reward:risk ratio, you don’t need to interfere with your trades.
Not interfering with your trades also makes it much easier to isolate your problems. When you leave your trades alone, you can pretty quickly determine if your problems have to do with your entry, target, stop loss, or a combination of these factors. If you start moving stop losses and targets once in a trade, isolating a problem becomes more complex.
You may notice the following tendencies in your trading:
–If you are just barely getting stopped out before the price moves in your favor, expand your stop loss slightly. Your entries are probably ok. Note the volatility of the pair, and the spread. These are typical reasons why people get ‘slightly’ stopped out…because they don’t adapt their strategy to different pairs and changing market conditions.
–If you are getting stopped out by quite a bit before the price moves in your favor, that is an entry issue. Work on your entries. You likely aren’t trading the correct patterns. You’re taking a trade where there isn’t one. New traders are often over-eager and take trades way before the valid trade signal occurs.
–If the price is reversing before your target, then your targets may be too aggressive, or, you need to be willing to hold your trades longer (through multiple oscillations) in order for them to potentially reach your aggressive target. You may also not be taking ideal trades at strong support/resistance or in the direction of the trend. Since our target is typically a multiple of our stop loss (3:1 reward:risk, etc), a poor entry can also mean an ill-placed target. If the stop loss is too big, then when we multiply it for our target, that target is likely to be way too far. The entry mistake is carried forward in placing a poor target.
If you don’t move your stop loss or target, you can zero in on your mistakes quite quickly, like highlighted above. That said, as a trader progresses they may see that performance can be improved by adjusting their targets and stop losses once in a trade. This is called active trade management. Ideally, don’t touch your stop loss until the price has moved at least 50% of the way to your target. This helps prevent you from “over-managing” your trades, and wanting to get out as soon as the price shows you a small profit or loss (relative to your original stop loss or target).
There are many ways to actively manage trades, or you may opt to not manage your trades at all. If you don’t want to manage your trades, just let them hit the original stop loss or target. To find out whether you should manage or not manage, compare the two options in a demo account. Pick one method and see how you do. Then compare those results to what would have happened if you used the other approach. You may notice one method produces a slightly larger profit than the other.
Typically the no-management method will produce a higher reward:risk on your completed trades, since you give your trades the opportunity to hit their full profit potential (your target). A trade management strategy usually increases your win-rate because you exit more trades with a profit (because you are locking in profit by moving your stop loss) but your wins and losses are typically smaller since many trades won’t be given the chance to reach your full target because it hits your altered stop loss first.
One method isn’t inherently better than the other. The best approach is the one that puts more money in your pocket.
It’s important to watch the other videos in the Forex Swing Trading in 20 Minutes video series so you see where the original stop loss levels, targets, and entries are placed.
Vid. 1 – Forex Swing Trading in 20 Minutes – Pairs to Follow and Setting Up Charts
Vid. 2 – Forex Swing Trading in 20 Minutes – Time Frames and Trend Trading Strategy
Vid. 3 – Forex Swing Trading in 20 Minutes – Crotch Strategy and Strong Support and Resistance
Vid. 4 – Forex Swing Trading in 20 Minutes – Position Size and Risk Management
Vid. 5 – Forex Swing Trading in 20 Minutes – Setting Profit Targets to Maximize Gains
Hope that helps you out!
To learn more about how to day trade and/or swing trade forex, including basics to get you started, strategies and a plan to get you practicing and successful, check out my Forex Strategies Guide for Day and Swing Traders 2.0 eBook. If you have limited time, and only want to spend about 20 minutes each week looking for trades, then check out the Forex Strategies Course for Weekly Charts.
Cory Mitchell, CMT
(Note: I re-created this trade by hiding my live trade and putting out new orders to reflect my trade/stop loss and target levels. I often do this to avoid accidentally closing or altering my live trades.)