FX: What To Do When a Trade is In-Play?

Filed under: Learn Forex Trading |

 

Screen shot 2013-01-24 at 09.57.40The question of moving stops and targets is something that I have covered before, but as it is something that comes back to haunt me time and time again, I feel that it is a topic that deserves a little more attention.

 

Let’s say, for example, that you take on a trade with a risk-reward scenario of 1:4. That means your target is four times your risk (so you might be risking $100 for a potential target of $400). Now, let’s say that this trade goes well, and you find yourself two and a half times your risk in profit. What do you do?

 

The simplest play would be simply to do nothing, and once an order has been filled, to let it play out and hit either your target or your stop loss. Go and play some golf, or watch a movie – anything but sitting in front of your screen watching what is happening.

 

Of course, some traders would say that this is unwise, and that you should at least move your stop to break-even. This may well be prudent, as letting a winning trade like this turn into a loser would be rather painful. You might also think about locking in some profits, and moving your stop loss to a position of profit equal to that of your risk. You might even be happy with a profit of two times your risk, and move your stop to this level, with there still being a chance of making the 1:4 RR target. All of these options are viable, but if you do this, it must be a part of your trading plan – otherwise, you will start to make all kinds of emotional trading decisions, and that can never be a good thing. For example, a trading plan could be to move stops to breakeven once a 1:2 RR profit level has been reached. The key is – to be consistent.

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>