How to MANAGE a TRADE.
Have you ever heard this saying, "A good trade is a well-managed trade." A good trade doesn't necessarily mean it will end up in profit all the time. Not all winning trades are good trades. Sometimes you might just get lucky that the market moves in your favor. But what is really a good trade?
A good trade is a well-planned and well-managed trade. The entry and exit methods have been preplanned. This is what makes a good trade. Well planned, well managed.
Planning a trade is one thing, managing a trade is another. If you have a good plan for entry and exit, what if the trade doesn't go as planned. This is where TRADE MANAGEMENT comes in. Just like we all know that money management is KEY in trading, the same thing goes for TRADE MANAGEMENT. The trades you take will make you money, and the more good trades you make, the more your account balance grows. But, how do I manage a trade?
Managing a trade is all about monitoring the trade and making crucial decisions as the trade performs. You are not going to win all the trades you take, but you can reduce your losses on bad trades. Once you have executed a trade, that is the moment trade management starts. Start watching the trade like a hawk watches its prey. The aim is to cut your losses early, maximize your profit and add more positions.
Here are the things to do when managing a trade:
- If the trade goes directly against you, cut your losses and reanalyze. DO NOT ADJUST YOUR STOP LEVEL after the trade has been executed. You put the stop there for a reason.
- If the trade goes directly in your favor, reduce your stop level by half while monitoring problematic areas (demand and supply levels).
- If the trade reaches halfway, move your stop to zero (breakeven) and monitor its reaction at problematic areas. You can even lock in partial profit.
- Close the entire position if the trade goes into full profit. But in case you see an opportunity to milk the trade, close 75% of your position and let the rest run risk-free.
It is advisable to manage every trade. You become really good at it the more you practice, and a winning trade will not end up becoming a losing trade. Trading is a business and money is on the line, and the more you treat it as such, the better you become at it.
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