Trade Management Excellence

Have you ever met someone that is really good at something?

Not just marginally good but better at something than anybody else you know?

Maybe that someone is you.

Being exceptional at something is a gift (usually a product of hard work) and kudos to those people that attempt to capitalize on their skill.

Talent wasted is a shame and for many reasons, most people don’t live up to their potential.

That reminds me of trade management.

People will be in a solid trade racing in their favor however at the end of it, they only receive a small market slice. While you can’t expect to pick off the entire move with any consistency, you probably could pick up more than you currently do.


A Few Trades To Make The Gains

Many traders will tell you it is 2-3 big trades that really make their entire year. Yes, they have many small wins and probably many small losses, but those longer term moves with an accommodating market really stock their accounts.

Getting in at a time when the move in your market is about to get underway and staying there is a sad thing to waste. Just like people that have potential and never chase it, wasting the potential of a market that is getting underway is something you don’t want to do.

The set and forget trading method is a huge selling feature. Place your enter, stop and targets and let the market play out. The biggest issue with that type of method is that it is missing one huge factor: trade management.

How you manage the trade can greatly affect your profit and loss.

Think of trade management as a hands on activity.

When being hands on, you are constantly aware of the strength or weakness of the market in relation to your position. When signs of market strength are present, perhaps you tighten stops with more give to them or depending on your plan, add another position to the trade.

When weakness develops, perhaps you lighten the load or simply exit and keep the majority of profits you have made.

I have seen many people give back a huge percentage of their profits hoping for the bounce that never comes once the market starts to correct.

Day traders must be even more vigilante. Weakness can occur quickly on the short time frames and your profitable position can quickly flame out. You must have the ability to exit quickly especially if you determine your trade entry was right according to your trade plan but doesn’t fit in the current market context.

Do The Opposite Of The Majority

It is a well known fact that the majority of traders let losers run and cut their profits quick. I get where that comes from, the fear of loss, however that is the wrong way to a continued trading career.

I like to think that when weakness is present, I no longer am welcome in the market. I will take steps to lessen the damage and take the bulk of the trade in profit. If you firmly believed that 2-3 trades a year can make your year, does it make sense to cut your trades off at the knees? Of course not.

Expect the worse but ride the best.

You know what many traders do in a losing trade? They will talk themselves to stay in the trade because they spot “divergence”. They spot a “MACD crossover” in their favor. They spot an “up sloping trend line” that price is falling to.

They IGNORE the change in a trending structure that the market is making.

They IGNORE the bearish engulfing candle that is wiping out a few days of upside gain.

Let’s imagine that you found a market where a trading range was broken to the upside but the true move was being setup for the downside.

You trade the breakdown of a bearish pullback at the dashed green line and the market rockets to the downside. Price shows you the strong push down and the drastic drop of the MACD indicator confirms that this move was far stronger than recent moves.

Price bottoms at the yellow arrow after a consolidation break and you can see by the lower shadows that buying was being supported at this price.

You combine your trading knowledge to allow you to decide your next move.

  • Strong pushes in one direction can often be countered by a short term climax
  • MACD is starting to slope upwards
  • The bottoming candles are showing buying support

After seeing the small red candle which fails to close near the lows, you exit. You managed your trade using what the market was telling you and you also know that while you are taking profits, other traders are still trying to short this market.

Indicators are great for confirmation of your overall sense of the market. They also can come in handy when looking at the lack of momentum in a market. You can see price making a much different structure when losing its push than it does when all signs point to go.


Don’t Forget Stops

Along the same lines as trade management is how you manage stops. Stop placement runs the gamut from fixed % based stops to the use of technical locations. Basing stops on a max percentage loss you are prepared to lose has some merit but it is really not based on current market conditions.

For example, using a money stop that comes from a percentage of your account can play your stop right in the middle of a zone that does not invalidate your trade.

When placing technical stops, you are letting the market, when it breaks a condition that showed the trade was in your favor, to show you the door on the trade. It’s the area that invalidates your premise for the trade. The issue that comes up with these is that traders fail to recognize it as a stop zone.

Swing levels are prime territory for stop placement.

It is also prime territory for the big money traders to run those areas to get better fills on their own positions. If using a technical level, you may want to allow for a run of that area and widen the stop from the zone.

The main reason traders like to use the top or bottom of a pivot or range for their stop is that is allows them to load up the position size. Understand that a simple break of those areas does not always mean your trade is invalid. It is quite common for these areas to be challenged and Wyckoff calls them springs and upthrusts.

Springs and upthrusts are a common pattern but traders always seem to be taken out because of them.

As a trader, I like to find ways to stay in a trade. Many times, instead of an order to take profit, I will set an alert in the zone and then see what price is doing. If strength is present, the conditions are ripe to let the profits extend. If weakness is showing, it means to either scale out and lock in less risk or more profit.

As opposed to using an indicator for a losing trade, I will look at an indicator to see if there are other reasons to exit. The difference is….I look for it to tell me to get out as opposed to staying in.

Think of the trades that are strong in your favor as a talent. Let it flourish and reap the rewards. Think of your profitable trades as being a product of your trading talent. Don’t waste them. Expect the worse but ride the best.

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Author: CoachShane
Shane his trading journey in 2005, became a Netpicks customer in 2008 needing structure in his trading approach. His focus is on the technical side of trading filtering in a macro overview and credits a handful of traders that have heavily influenced his relaxed approach to trading. Shane started day trading Forex but has since transitioned to a swing/position focus in most markets including commodities and futures. This has allowed less time in front of the computer without an adverse affect on returns.