Benefits & Drawdowns Of Splitting Trades
----
We interpret and explain price moves in real-time, 24 hours a day. Our team of analysts produce text, video and audio commentary.
You understand the markets and trade with confidence. Learn more at our website here: https://bit.ly/2HFykNd
Splitting trades into multiples units has its pros and cons, but for us the benefits outweigh the drawdowns.
-----
We have a question from a new subscriber asking why we prefer to split our trades into multiple units, and says that in the last four or five trades we took recently we took off our first unit at our first target and then moved the stop to breakeven, but in all those recent trades the second units were taking out at breakeven, so shouldn’t we then just stick to one unit and take full profit at the first target area?
Thanks for the question, and it’s a great observation. The reasoning behind doing it this way is really twofold.
Firstly, it’s a way to help with the psychology when you split your positions like this.
Just quickly for those that is not aware what we mean by splitting the order it means instead of taking a full position with just one unit, you split the order into multiple parts.
So, let’s say you want to run 0.50% on a trade, instead of taking 1 position at 0.50% risk you take two positions at a 0.25% risk each. And then as you reach a first target area you can take the first unit off and then you either reduce your risk by moving your stop up or even moving it to breakeven.
The reason why this is good for you psychology is because it allows you to buy a bit of restraint when you trade. You see, by taking off the first unit and banking profit, that fear of missing out on unrealized profit is drastically removed from the equation, and by reducing the risk on the second position or even moving it the BE it means you take the risk out of the trade and don’t worry and fear about losing that unit because you banked some pips already.
The second reason it helps, apart from the psychology part, is because it helps you to let your winners run. You see, whenever you are trading, you can have the strongest conviction in a trade and everything is lining up perfectly and the probability is high, but you never really know how far the price will go, something unexpected can hit the wires and take you out of your trade.
So, by allowing that second unit to run you can take advantage of the market moving a bit further. Now of course, as per your observation in the past four or fives trades we took off a first unit and then moved the second the BE but got taken out of all of them on BE, even though that has happened with these most recent trades it doesn’t happen to all the trades, this was just a small sample size that happened to work that way.
Of course, in the current market environment we do want to keep a tight leash on our trades as there are still lots of uncertainty in the markets and have been very sensitive to headline risk.
Now, as we mentioned, these are the reasons we like to split them, but of course you can decide to just trade one unit instead of splitting it, that is also fine, but that will mean that you don’t give yourself the chance to hit that deeper targets as you’ll always be taking it off at the first area, now again there is nothing wrong with doing it that way, this is just the way I personally prefer to do it to keep my psychology in check.
So, hope that helps, any other questions just let me know.
-----
If you find this content helpful, you’ll love Forex Source.
There’s a link below were you can learn more about it
https://bit.ly/2HFykNd
We interpret and explain price moves in real-time, 24 hours a day. Our team of analysts produce text, video and audio commentary.
You understand the markets and trade with confidence. Learn more at our website here: https://bit.ly/2HFykNd
Splitting trades into multiples units has its pros and cons, but for us the benefits outweigh the drawdowns.
-----
We have a question from a new subscriber asking why we prefer to split our trades into multiple units, and says that in the last four or five trades we took recently we took off our first unit at our first target and then moved the stop to breakeven, but in all those recent trades the second units were taking out at breakeven, so shouldn’t we then just stick to one unit and take full profit at the first target area?
Thanks for the question, and it’s a great observation. The reasoning behind doing it this way is really twofold.
Firstly, it’s a way to help with the psychology when you split your positions like this.
Just quickly for those that is not aware what we mean by splitting the order it means instead of taking a full position with just one unit, you split the order into multiple parts.
So, let’s say you want to run 0.50% on a trade, instead of taking 1 position at 0.50% risk you take two positions at a 0.25% risk each. And then as you reach a first target area you can take the first unit off and then you either reduce your risk by moving your stop up or even moving it to breakeven.
The reason why this is good for you psychology is because it allows you to buy a bit of restraint when you trade. You see, by taking off the first unit and banking profit, that fear of missing out on unrealized profit is drastically removed from the equation, and by reducing the risk on the second position or even moving it the BE it means you take the risk out of the trade and don’t worry and fear about losing that unit because you banked some pips already.
The second reason it helps, apart from the psychology part, is because it helps you to let your winners run. You see, whenever you are trading, you can have the strongest conviction in a trade and everything is lining up perfectly and the probability is high, but you never really know how far the price will go, something unexpected can hit the wires and take you out of your trade.
So, by allowing that second unit to run you can take advantage of the market moving a bit further. Now of course, as per your observation in the past four or fives trades we took off a first unit and then moved the second the BE but got taken out of all of them on BE, even though that has happened with these most recent trades it doesn’t happen to all the trades, this was just a small sample size that happened to work that way.
Of course, in the current market environment we do want to keep a tight leash on our trades as there are still lots of uncertainty in the markets and have been very sensitive to headline risk.
Now, as we mentioned, these are the reasons we like to split them, but of course you can decide to just trade one unit instead of splitting it, that is also fine, but that will mean that you don’t give yourself the chance to hit that deeper targets as you’ll always be taking it off at the first area, now again there is nothing wrong with doing it that way, this is just the way I personally prefer to do it to keep my psychology in check.
So, hope that helps, any other questions just let me know.
-----
If you find this content helpful, you’ll love Forex Source.
There’s a link below were you can learn more about it
https://bit.ly/2HFykNd
