Trade management is most certainly one of the most important aspects of becoming a successful trader. Your entry point is not what will set you apart as a successful trader, but more likely it is your exit point that will do so. Indeed in our experience, most of our students can easily find their way into the market, but it’s the getting out that confuses them to no end and results in less than satisfactory results. Trading strategies all differ in their requirements for trade management, but these rules if adhered to will help in your day to day trading.
Beware the Banks
or “Where should I put my stop?”
Given that you will determine your stop before you enter the trade (you do that, don’t you?), you should take care to avoid round numbers and the age old below the previous low and above the previous high mentality. Actually, the banks push below or above these figures regularly before pressing in the opposite direction, and it’s the reason many clients message us after having been just stopped out during a trade.
Remember the trading sessions.
Mostly Mark notes these in his messages each day, but you should be aware that the market goes through 3 sessions during a 24-hour period. This is especially crucial for those of us trading the FTSE. Simply put, we need to be out of our trades before the market opens at 2 p.m. for the US session.
Using Risk/Reward for Trade Management
Another thing you can check by looking back at your past trades is our risk reward ratio. This really is a key determinant of success and one we always check when looking at a pro trader’s results.
If you consistently maintain a 1 to 1 or above ratio, it allows you to make many mistakes or take a loss half the time and still come out ahead. Without it, it simply becomes mathematically more difficult to stay ahead. It’s the discretion that foils most beginning traders, and mainly the discretion of when to come out of the market. By using a simple risk reward take profit, the need for discretion is eliminated, which can result in transforming a losing trader into a profitable one almost instantaneously.
Obviously, there is a balance here between success and greed and having this balance takes the psychology out of it.
All of our trades in our successful Whale Program have set risk reward ratios for ease of use by our clients.
By applying these money management tips, you will be able to take more profits out of the market consistently.