Hello traders! In honor of baseball season, this week’s newsletter will reference America’s favorite pastime. The main point of this letter is setting realistic expectations on your trades and managing your winners properly. After speaking to several students over the years, there has been a relatively consistent topic that comes up, which sounds something like this: “I get into a trade and it goes my direction, but after a while it goes against me and I get stopped out.” My next question is always “How far does it go your direction?” Usually the answer is something like “20 pips” or “the distance of my stop loss” or some other metric that they are using.
Guess how far these traders are getting on the diamond in baseball? That would be “first base”! In trading, very often experienced traders will have multiple targets for their trade. If you are trading 3 lots, basically you could have three potential targets to exit this trade, perhaps 20 pips for one lot, 50 pips for the second, and 100 pips on the third. If you are consistently hitting your first target before price retraces, you are hitting consistent “singles” in baseball, getting you to first base! Many new traders only want to hit the “home runs” with their trades, making dozens if not hundreds of pips on a trade. In our current market volatility, not everyone is good at hitting these home runs. You would be surprised how many traders I’ve spoken to who stubbornly watch a 20-50 pip winner turn into a losing trade, by letting it retrace all the way back to their stop loss! Instead of going for only the home run,… Continue Reading
