Scaling Out Of Trades To Manage Losing Positions
Scaling Out Of Trades To Manage Losing Positions is something that you are constantly going to experience in your trading but how much do you risk?
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This is something that you are constantly going to experience in your trading. Now the way that most traders have been taught, is that you decide what amount you want to risk on a particular trade, let’s say you decide on 1%, and then what they do is pick a place where they think is a good enough stop loss and then to take a 1% position on the trade, but they mostly only take on clip, meaning one trade at 1% risk.
Now there is of course nothing wrong with doing it that way, but the way that I prefer to do it is by taking multiple clips on a trade. So, for example, let’s say I decided to risk 1% on this trade of yours that you entered at the 89.00, and let’s assume that I anchored my stop at 0.8970, what I like to do, instead of taking just 1 unit or clip at 1% risk, I like to take that 1% and split it up into 2 or 3 clips.
The reason why I like having multiple units for trade management when a trade is going against me, is because it allows me to scale out of positions when I start to lose confidence in them. So, let’s take your current trade on the EURGBP, you say you entered at 0.8900, and let’s say like I said earlier let’s assume your stop is at 0.8970. The very first trade management question you always need to ask yourself when a trade is going against you is ‘has anything changed with my bias’? That’s always your starting point, because maybe the bias has changed, in which case you shouldn’t be hanging around, just get out of dodge on the trade and cut the loss as quick as possible.
But, luckily in your case you mentioned that you’ve gone through your analysis and you are still sure that the EURGBP has a downside bias, but the trade is going against you. Now if the bias is still intact, there can be numerous reasons for the trade moving against you, such as just plain good old fashion corrections, in this case we reached quite a significant higher timeframe support on the EURGBP if I recall correctly with that 0.8870 area on this pair so might just be a bit of a correction, which mean that maybe the timing might not be perfect on the trade right now, so if that’s the case, it’s difficult to just cut the trade immediately because it might turn around any minute with positive Brexit news, so what do you do?
Well, that’s where multiple units comes into play for me. Because imagine if you took 2 or 3 clips at the 0.8900, with your stop anchored at 0.8970, instead of just cutting your full position here or just waiting for it to reach your stop loss and take the full 1% loss, you have the flexibility to scale out of the trade. So, the way that I do this, is that I usually have markers that I use on the charts, recent swings or psychological areas or pivot points, and if I think that I might have the timing wrong on a position I like to start scaling out of that trade as I move towards my stop loss area.
What that allows me to do is reduce my risk on the trade, because if I really think that I might have my timing wrong on the trade I have the flexibility to stay in the trade with the remaining unit or units in case it’s just a slightly deeper pullback but it also means that if I am right and my timing was wrong I can soften the blow with the trade in terms of risk.
The beauty of this method, is what happens if it was just a deeper pullback and just when you closed one of the units the price moves back in your favour? What then? Well, the beauty is that you can then simply add that one or two units that you took off back to the trade, by adding it back it’s not like you are adding a whole additional 1% risk, remember you’ve split your 1% into various parts, which means you are only adding back 0.25% risk or 0.33% risk, and the great thing is you can add that unit once price shows you that it’s moving back in your direction, by maybe entering with a false break pattern or something similar.
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There’s a link below were you can learn more about it
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----
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://financialsource.co
-----
This is something that you are constantly going to experience in your trading. Now the way that most traders have been taught, is that you decide what amount you want to risk on a particular trade, let’s say you decide on 1%, and then what they do is pick a place where they think is a good enough stop loss and then to take a 1% position on the trade, but they mostly only take on clip, meaning one trade at 1% risk.
Now there is of course nothing wrong with doing it that way, but the way that I prefer to do it is by taking multiple clips on a trade. So, for example, let’s say I decided to risk 1% on this trade of yours that you entered at the 89.00, and let’s assume that I anchored my stop at 0.8970, what I like to do, instead of taking just 1 unit or clip at 1% risk, I like to take that 1% and split it up into 2 or 3 clips.
The reason why I like having multiple units for trade management when a trade is going against me, is because it allows me to scale out of positions when I start to lose confidence in them. So, let’s take your current trade on the EURGBP, you say you entered at 0.8900, and let’s say like I said earlier let’s assume your stop is at 0.8970. The very first trade management question you always need to ask yourself when a trade is going against you is ‘has anything changed with my bias’? That’s always your starting point, because maybe the bias has changed, in which case you shouldn’t be hanging around, just get out of dodge on the trade and cut the loss as quick as possible.
But, luckily in your case you mentioned that you’ve gone through your analysis and you are still sure that the EURGBP has a downside bias, but the trade is going against you. Now if the bias is still intact, there can be numerous reasons for the trade moving against you, such as just plain good old fashion corrections, in this case we reached quite a significant higher timeframe support on the EURGBP if I recall correctly with that 0.8870 area on this pair so might just be a bit of a correction, which mean that maybe the timing might not be perfect on the trade right now, so if that’s the case, it’s difficult to just cut the trade immediately because it might turn around any minute with positive Brexit news, so what do you do?
Well, that’s where multiple units comes into play for me. Because imagine if you took 2 or 3 clips at the 0.8900, with your stop anchored at 0.8970, instead of just cutting your full position here or just waiting for it to reach your stop loss and take the full 1% loss, you have the flexibility to scale out of the trade. So, the way that I do this, is that I usually have markers that I use on the charts, recent swings or psychological areas or pivot points, and if I think that I might have the timing wrong on a position I like to start scaling out of that trade as I move towards my stop loss area.
What that allows me to do is reduce my risk on the trade, because if I really think that I might have my timing wrong on the trade I have the flexibility to stay in the trade with the remaining unit or units in case it’s just a slightly deeper pullback but it also means that if I am right and my timing was wrong I can soften the blow with the trade in terms of risk.
The beauty of this method, is what happens if it was just a deeper pullback and just when you closed one of the units the price moves back in your favour? What then? Well, the beauty is that you can then simply add that one or two units that you took off back to the trade, by adding it back it’s not like you are adding a whole additional 1% risk, remember you’ve split your 1% into various parts, which means you are only adding back 0.25% risk or 0.33% risk, and the great thing is you can add that unit once price shows you that it’s moving back in your direction, by maybe entering with a false break pattern or something similar.
-----
If you find this content helpful, you’ll love Financial Source.
There’s a link below were you can learn more about it
https://financialsource.co
