Holding above Zero
Give the bills a miss and ‘Charge it to Kiss’. It’s a radio competition where the listener adds one bill after another to win money to pay off the bills. The catch - stay in the game too long and add too many bills and you end up with nothing. Knowing when it’s time to leave an open profitable trade may make the difference between banking profit or ending up with nothing at all.
There is nothing more heartbreaking than a profit going all the way to zero or beyond, turning into a loss. A few methods traders use to ensure this doesn’t happen include:
(1) Moving your stop loss to breakeven or above at a certain level of pips or dollars.
(2) Taking some profit by reducing your position size. For example, selling ½ of the position and moving a stop loss to breakeven.
(3) Closing the trade at a predetermined target goal.
This is not an inclusive list as there are many ways to manage your open profit. The profit taking method chosen may be applied to any market you trade. For trading the FX market during the Asian session leading up to the London open, I have found my strategy of aiming for 20 -30 pips on a 1 hour time frame to be an achievable goal.
The following past trade on GBPCAD shows how I managed one of those trades.
On the GBPCAD 4 hour chart, Figure 1, there is the emergence of a downtrend on the right side of the chart. Traders are actively selling and pushing price downwards as seen by the widely separated blue lines of the short-term GMMA. The short-term GMMA group is sitting under the long-term GMMA group in the order of a downtrend.
The GBPCAD 1 hour chart, Figure 2, matches the trend direction of the 4 hour chart with the short-term GMMA sitting under the long-term GMMA. The downtrend is supported by both the short-term traders and the long-term investors as seen by the widely separated moving average lines. A wide space between both of these groups is a clear sign of a strong downtrend in place.
Price had earlier pulled back towards the gap between the long-term and short-term GMMA groups before moving down. A short position was opened at an entry of 1.7408 with a stop loss from the Traders ATR line at 1.7445. The profit target was set at 75% of the Average Daily Range (ADR) over the last 5 days at 1.7321. ANTSSYS research has shown an 85% probability of price reaching this target over a 24 - 48 hour period.
Price moved down and the trade was closed for a profit of 26 pips as marked. The 75% ADR level was reached over the next candle but it doesn’t always happen so quickly. There are trades where it takes hours of patience, waiting through price volatility before the possibility of a further 10 pips, 20 pips or more. For those in Australia who like a good night’s sleep, a close of 20 to 30 pips means calling it a day sooner than later.
Greed has been the downfall of a number of my trades. It happens when I try to eye more than 40 pips during the Asian session. Once in profit, I often move my stop loss at or slightly above the entry price or trail the open profit using the traders ATR to maximise profit. There are times where a trade ticks up to over 20 pips in profit before price starts retracing and I end up with a small number of pips in profit. Any profit is better than a loss, though in hindsight, closing a trade for 20 to 30 pips when it was there for the taking earlier was obviously the better idea. In order to make more than 30 pips I may need unusual price momentum or a different strategy designed to capture the bigger moves.
Of course, it is possible to take more than 30 pips during the Asian trading session. From my own experience, aiming for the higher probability trade of 20 to 30 pips on a 1 hour chart at this time of day is a more achievable goal as well as a repeatable process.
By setting realistic profit targets, the probability of achieving your target with particular FX pairs is higher. Familiarising yourself with the session you are trading in helps you determine a good time to take profit. Once a trade is in profit, we want to hold above zero and not see it go back to zero. Retaining a small profit is better than taking a loss.