Trade Management - Live Example
One must treat trading like a business and, like every business, a good trader must have a Plan to make it work. A crucial part of the overall Trade Plan is Trade Management, the primary goal of which is to reduce the risk. Despite being such an important factor in the trading process, it is, unfortunately, still ignored by most traders.
On 23rd September, we identified a Bitcoin divergence setup on the 4hr chart. It met all the necessary criteria for a strong, high probability setup based on our winning combination of divergence, price action and fibonacci ratios. The trade is still live and moving in our favour.
Let's go over the trade management of this setup now.
Chart 1: We identified the setup as per our rules & entered the trade.
Price moved in our favour. (Our technique eliminates most of the unsure trades, raising the probability of success.)
Chart 2: Current situation.
Even though price has moved in our direction, it has not yet reached our first target.
But as of now, there could be a loss of momentum as we see a possible formation of a bearish divergence. We really do not know if price will continue further in our direction or retrace & turn our winning trade into a losing trade.
There are always factors beyond our control that could influence the price, but we can control the factors within our control, which is what trade management is about.
So here's what we did:
Step 1 – We moved the Stop to our Entry level.
Step 2 – We took partial profits at the current level & closed 1/3 of our position.
At this stage, we are in a free trade.
Regardless of what happens to the trade, we have taken some profit off & our stop loss is at breakeven - which means there will be no loss in this trade.
As they say - take care of your losses & the profits will come.
Let me end this with a famous song by the great Kenny Rogers – The Gambler (one of my all time favorites)
What he says applies so much to trading & you will relate the song to our trade.
You gotta know when to hold ‘em
Know when to fold ‘em
Know when to walk away
Know when to run.
And if you are anything like me, you are humming along with the lyrics -;))