Sometimes you get stuck in a trade that won’t go for you.
It chops around, not moving in your direction, nor moving against you enough to stop you out.
So, what should you do? Is it best to hold on and wait for the trade to go in your direction? Or is it a sign that you should exit early?
To find the answer, you can assess these two factors.
Understand your system
First, take a statistical view. Do your good trades typically work out straight away or do they develop over time? Once you have been in a trade for a certain length of time, you may find that is a sign that it is not going to work out. Conversely, you might find that if you hold on, the trend eventually re-establishes itself. This will be down to your individual system.
This information can be gathered from an analysis of past trades, running your trades through statistical analysis software, or from your trading journal.
Opportunity cost
If you can only take a limited number of trades at any one time per your trading plan, then having your capital tied up in a non-performing position may mean you miss out on other potentially profitable trades.
If another quality opportunity comes along, then that may be a sign to close out of your non-performing position and take the new (and better) opportunity.
Alternatively, you can limit the risk on the non-performing trade by trailing the stop, which can free up risk for the new trade.
Over to you
This simple framework will allow you to handle the situation objectively. It’s about understanding your probabilities.
If you know that after 24 hours your trades only win three times out of ten, then you can close out of your position confidently to take that juicy new opportunity that has come along.
Cheers,
Sam
by | Jun 7, 2017 – 12.29 pm
About the Author
Sam Eder is a currency trader and author of The Consistent Trader and the Advanced Forex Course for Smart Traders (get free access). He is the owner of www.fxrenew.com a provider of Forex signals from ex-bank and industry traders (get a free trial). If you like Sam’s writing you can subscribe to his newsletter or get FREE access to his acclaimed How to Be a More Consistent Trader Short Course.