Forex Trade Management – What to do After You Enter a Trade
Today’s article is going to provide you with some extremely important and practical information that will help you improve your trading results immediately….
Forex trade management is arguably the most important aspect of success in the markets; it can literally make or break you. Once you learn a high probability Forex trading strategy like price action, you have to know how to manage your trades after they are live. Most traders simply ignore this essential piece of the Forex trading puzzle. By ignoring trade management or by simply not being aware of it, it is only a matter of time before you self-destruct in the market. A perfect price action trade setup can very easily turn into a losing one if you fail to manage it properly. So, without further ado, let’s dive into some practical Forex trade-management tips that you can put to work right away…
Forex Trade Management Mistakes…
Most trade management mistakes are a result of emotional decisions. How often have you found yourself entering a new position just because your current position is in profit? Or how about moving stop losses further from your entry because you are “certain” that price will turn around and move back in your favor? Have you ever moved your profit target further out as a trade moved into profit because you convinced yourself it would keep going because of XYZ reason? Maybe you take profits smaller than 2 times risk all the time or often get stopped out at breakeven only to see the market move on in your favor without you? These are all very common errors that traders make which are caused from poor or no planning and emotional decision making.
All of these errors seem pretty silly when you’re not in the market and thinking objectively. But, once you enter a trade, if you are not following a Forex trading plan and keeping track of your trades in
a Forex trading journal, you are very likely to experience extreme temptation to make one or more of the above mentioned trade management mistakes. While trade management is not a concrete science or a mechanical process, there are some general guidelines you can follow and questions you can ask yourself before and during each trade which can help you manage your trades much more effectively…
Averaging In and Averaging Out…
Let’s discuss adding to positions and having multiple or partial positions. First off, the decision of whether or not to add to your initial position in a trade should largely be made before you enter. You need to analyze current market conditions and decide the most logical exit strategy and whether or not adding to your initial position is logical given current market conditions. If you are entering into a strong trending market, you may decide before hand that you will try a trailing stop and try to let the trade run and add to it at logical levels as it moves in your favor. The safest way to add to a position as it moves in your favor is to average in as the market moves in your favor. Here is an explanation of averaging in…
– Averaging in means that you use your open profit to “pay for” the next trade, it allows you to add to your position in a risk-free manner, but the sacrifice is that you increase your odds of getting stopped out at breakeven. It typically is only good to try this technique in a market that is in an obviously strong up or down trend. Forget about it in trading ranges or sluggish / slow-grinding markets.
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