Should I stay or should I go?
Three factors for good trade management
Knowing when to make your move is key to being a successful and profitable trader. Here are three things you need to handle to keep on track:
1. Know the probability of the trade
Make sure you know whether your trade is low or high probability and whether it’s against the trend or with it. If a trader goes long in a short market it’s a low-probability trade so more than likely it is going to end up in a losing trade.
If you have a high-probability trade that failed, the market likely wants to change direction. If you have a high-probability trade that you don’t make a lot of points on, it means the market is slowing down or reversing.
Sometimes low-probability trades also bring in points. Lower probability trades are against the prevailing trend, so taking a trade to the opposite side becomes preferable and may end up being a high-probability trade. That is because the trends start to change from the lower time frames to the higher timeframes. But you have to keep an eye on the higher ones especially as it might be a retracement on a higher-level timeframe (typically a 5 or 15 minute timeframe).
2. Know your rules for risk
Be very clear how much money you want to allocate to a trade. Is your rule that you only ever risk half a percent per position or a maximum of 6% of your portfolio on any one trade? Having this clear boundary means that if you lose a few percent it doesn’t make a material difference to your account, your mindset and your wellbeing.
Remember that your risk management will improve over time. Never get put off by the occasional trade that goes against you. If it doesn’t work out, look at your trading plan and see where there is something that could be changed.
3. Practice your strategy and approach
Believe in your system and stick to it and your trading plan strictly, even if it looks like the market is going against you. Of course not all trades will be successful - with any business you have profits and losses. As long as the profits are more than the losses it’s ok.
It’s about practice too, which includes practicing the skill of not doing anything for a few hours until you see a setup that meets your criteria. You never want to be making involuntary or emotional moves.
Knowing when to make your move is key to being a successful and profitable trader. Here are three things you need to handle to keep on track:
1. Know the probability of the trade
Make sure you know whether your trade is low or high probability and whether it’s against the trend or with it. If a trader goes long in a short market it’s a low-probability trade so more than likely it is going to end up in a losing trade.
If you have a high-probability trade that failed, the market likely wants to change direction. If you have a high-probability trade that you don’t make a lot of points on, it means the market is slowing down or reversing.
Sometimes low-probability trades also bring in points. Lower probability trades are against the prevailing trend, so taking a trade to the opposite side becomes preferable and may end up being a high-probability trade. That is because the trends start to change from the lower time frames to the higher timeframes. But you have to keep an eye on the higher ones especially as it might be a retracement on a higher-level timeframe (typically a 5 or 15 minute timeframe).
2. Know your rules for risk
Be very clear how much money you want to allocate to a trade. Is your rule that you only ever risk half a percent per position or a maximum of 6% of your portfolio on any one trade? Having this clear boundary means that if you lose a few percent it doesn’t make a material difference to your account, your mindset and your wellbeing.
Remember that your risk management will improve over time. Never get put off by the occasional trade that goes against you. If it doesn’t work out, look at your trading plan and see where there is something that could be changed.
3. Practice your strategy and approach
Believe in your system and stick to it and your trading plan strictly, even if it looks like the market is going against you. Of course not all trades will be successful - with any business you have profits and losses. As long as the profits are more than the losses it’s ok.
It’s about practice too, which includes practicing the skill of not doing anything for a few hours until you see a setup that meets your criteria. You never want to be making involuntary or emotional moves.