Imagine, for a moment, that you’ve done the market analysis and you’ve entered your trade in the sweet spot; it’s trending in the right direction and now your money is making money. You’ve hit your earnings goal and it’s time to do the responsible thing and get out. Without a doubt, leaving a winning trade is very hard to do but it’s a necessary evil to managing your portfolio – in essence, the health of your investments is determined by how you manage your winning trades.
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Some people are advocates of the trail method; they put a stop-up tied to the trade, let the price come back, then take them out of the trade. Others are fans of the fixed price target, they have done their analysis before the deal and set the departure level. We’re going to look at both strategies to share some of the pluses and pitfalls and recommend a hybrid approach to manage your trades.
Bear in mind that the aim to manage trades is to give enough wiggle room within the price fluctuations, cut through the noise and still come out with the best price advantage. It’s impossible to predict a perfect trade, selling at the highest high and buying at the lowest low. If it was easy, everyone would be doing it, right? The point is to play the best “game” and come out with a profit, and to do that, managing the trade is what helps you zero in on the sweet spot. You don’t need a bullseye – you only need to be in the general range.
The Trailing Stop Method
The trailing stop method is effective and fairly popular with traders because it’s pretty straightforward. Pick a time period, determine if you’re going long or if you’re looking into more of a day trader’s perspective with an aggressive strategy.
Depending on the type of trader you are, those trailing stops are for buying in or selling off right at the beginning a breakout. Remember what we stated earlier, almost no one gets it perfect, but getting in toward the beginning of a breakout has the potential to earn a good amount of profit. The market trend is what will help you determine your trailing stops.
The trouble with trailing using a Moving Average (MA) is the possibility of leaving when the opportunity is still ripe for profit taking, but the stops that were put into place might be too tight on the market’s pullback.
Here’s where that strategy can backfire on your a little. Let’s say we’re buying and there’s a breakout; in this example with using a moving average, your stop order is triggered the first time the market volatility hits your tight margin price point. If you aren’t paying attention to it then the opportunity to buy more, perhaps making less profit but still a profit, has already passed.
In another scenario, your trailing stop price margins are too wide which may require more patience with a longer period moving average, but then the price rockets but your trade margins are stagnant and full of missed opportunities.
This segues into deploying the fixed price target method of trading.
Fixed Price Target
If you are very strict and disciplined, fixed price target trading might be more your style but there are some drawbacks to this. Let’s preface this by saying discipline is NOT a bad thing but being too strict could be a hindrance to your profit margins.
Strict price targets are great for the concept of one and done. You’ve picked your target and buy (or sell) at that price with the knowledge that you’ve hit your profit margins regardless of the trends or breakouts that could potentially boost your profits. Plodding along is not always a bad thing but it is very rigid.
Lastly, we mentioned the hybrid approach to the trailing stop and fixed target market trade styles. How does this work? With a little situational awareness of where the market stands, it’s reasonable to have a target price and set up trailing stops with each marker that you’re comfortable placing. You’re still using the discipline that’s needed to earn profit (or take a smaller loss), but also giving yourself a little more playing field.
In this scenario, we have a fixed target for a buy order into a bullish trend of BTCUSD. Let’s say our first target is set and the trade entered with a reward to risk ratio of 3:1.
A hybrid profit taking strategy may exit at a fixed profit target of 1.5 times the order, but now the technical analysis predicts a bullish trend. Why not place trailing stop orders to scoop into the bullish trend? As mentioned earlier, the profit of coming in later during a run is still a profit.
As a final thought, the rules for managing a winning trade are not cast in stone. In the end, a profit is a good day. How you manage your winning trades is based on your analysis, trading style and how much risk you’re willing to take.
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