"The Tricks of the Trade" Seminar
"Practical Trading. Part II"
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Managing Your Position
Once in a trade, a very important part of the trading process is how
you manage your position. By this I mean adjusting your stop loss and taking
partial or total profits. As a general rule of thumb, the shorter the time
frame that you are trading on the faster you should take profits or move
your stop loss up to break even. In short term trading you are not looking
for a major trend and so you do not have to give the market room to manoeuvre;
nor do you have to hang on in there in case you should miss the move. If
it is not working for you then start moving your stop loss up pretty quickly
or simply close the trade.
I have found that one of the most useful improvements to my trading
has come about through trading multiple contracts and scaling out of a
position. Even if one is only trading 2 lots, one then has the luxury of
taking partial profits when the market has moved a certain amount in ones
favour. This can make an enormous difference to ones trading: you could
trade 2 lots for example, a sell one contract when you have a certain amount
of profit, and move the stop loss to break even for the remaining contract.
That way you cannot lose, in fact you have guarenteed a profit on the trade
and the market may now take off with you still in a position. This is a
much more relaxing situation to be in that if you were sweating it out
trying to decide what to do next. Of course, the larger the number of contracts
that one is trading the more scope for variation there is in scaling out
of the position, with multiple profit targets along the way.
Quality not Quantity
Even when short term or day trading, it is important to be disciplined
enough to wait for the best quality trades rather than "having a go"
at anything that looks chanceable. Trading is simliar to poker in that
it is a matter of waiting for the best hands or trading situations to come
along before risking your hard earned trading stake on it. Be prepared
to spend many days not trading if necessary whilst waiting for the best
opportunities.
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