“Cut your losses short and let your profits run.” So many traders chant that mantra while working in the markets. Anyone who has ever had money in the markets knows that this is an easy thing to say but much harder to actually do. The emotions of fear and greed creep into our trading environment and influence our trading decisions. My students often ask me if there is a way for them to hold on longer to their trades for greater profits. Fortunately, there are some things we can do to help us to accomplish this.
The first is to have a trading plan that will detail your risk management and trade management strategies. This is such a critical tool to be a successful trader that we involve trade plan development in every one of Online Trading Academy’s courses. Having written rules for managing trades can help remove the effect of emotions on your trading since you will be following a prescribed strategy, (basically following your orders), rather than trying to make decisions on the spot. Writing the rules down allows you to review them on a regular basis and see if you are consistently following them. You are holding yourself accountable for your actions and are more likely to follow them.
In your rules, you should have some sort of guideline as to when you will move your initial stop to breakeven. You could move it when the current profit is equal to the initial risk in the trade. The disadvantage of this method is that you can get stopped out too quickly from time to time. To avoid this, you could… Continue Reading
