I was working with one of my Forex students in London last week after class. The student had taken a large loss in his trading account and was now taking very small gains. He knew that he was making great entries but kept fearing losing any gains so he was cutting them short.
This is a common theme with many traders. They become obsessed with not giving back any winnings that they do not allow their winners to grow. Without medium or large winners, you stand little chance of overcoming any small losses, let alone large losses that may occur in your trading. So how does one conquer this fear and allow the winners to blossom?
It may not be easy, but you can start by removing yourself from the equation. Most trading platforms will allow you to set up your entry order, your stop order, and your target order all before you enter the position. If you do not have to watch the position, you will be less likely to cut the winner short. Practice and master this advanced order routing feature on your software so that you let the trade play out rather than interfering with it.
Another method for allowing profits to run is to scale out of the position. If you are a follower of the Online Trading Academy’s Pro Picks or have attended an Extended Learning Track, you will notice that there are usually multiple targets stated when the trading ideas are presented. If you take some of your position off at each target in your own trading, you have been paid for your trading work performed. Since you have received compensation already, you are likely to be more relaxed and agreeable to let your continued position run much further.
Nervousness in a position usually stems from having too large of a share size. Cutting back the exposure in the markets until you feel comfortable will generally help you stay in positions longer. You make the same profits if you let 10 shares run $1.00 in price as you do exiting 100 shares with only a $0.10 per share profit.
One thing I try to do when trading is to target supply or demand zones from the larger time frame for my target. If I am trading with the dominant trend as most successful traders do, I will want to ride out that trend as far as it will allow me to go. That is typically until it hits the supply or demand from the larger time frame. For instance, if I am entering a long position at demand on the five minute chart, I will take partial profits from the next supply zone on that five minute chart. I explained scaling out earlier.
But the remainder of that position will not be booked for profit unless I am stopped out or until I reach the supply from a 30 minute chart. The small time frame (five minute), supply only causes price to correct. The reversals will usually occur at the larger time (30 minute) frame supply. Of course you would adjust this for the time frame you have selected for trading. By scaling out and identifying larger targets, you should start to see your winners grow. Remember to use protective stops and protect your capital as well.
To learn more about how to use these techniques in live market environments, come visit your local Online Trading Academy center and enroll in a course today!
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