How to Manage Your Trades Part 6: Short-Term Trade Management
In our previous posts on trade management we have utilized daily mecchanical trading systems in order to highlight the usefulness of trade management and how to reason when attempting to build your trade management vehicle. Today instead, we’re going to drop to smaller timeframes and walk through a real trade taken by one of our traders, Sachin Vaze (you may recall him from this webinar).
When reading through the article, I would suggest focusing on a few things:
- what Sachin’s objective was at inception;
- when the trade management decisions were made;
- why they were made.
Real world rules-based discretionary trading can be quite “messy” at times and that’s why the rationale behind the decisions, alongside the overarching objective for the trade, are the only ways to objectively evaluate the end result.
NZDCAD – Nov 29th 2018
The trade is counter-trend, based on an intraweek stretched market and a potential double top in the works. The exact nature of the trade will however remain proprietary. The entry was 0.9124 short.
- The stop loss is at 0.9140
- The first target is 0.9082 (1/3 position) which is the current day’s low/Asia low and an evident swing low where buyers were seen earlier in the day.
- The second target is 0.9050 (2/3 position) which is another evident swing low from the previous day.
- The combined risk-reward is 4:1
- 0.91338 – 28/11 high
- 0.9114* – possible support
- 0.9103* – possible support (minor)
- 0.9093* – possible support
- 0.9080 – Asia session low (TP1)
- 0.9059* – possible support (TP2)
Trade Management Updates
- pro – “price could realistically move higher take out my entry. No loss in this scenario.”
- con – “price takes out position, doesn’t hit my original stop and then heads lower.”
However, since price price is in a very strong uptrend, and trading is first about controlling risk, Sachin opted for the breakeven stop.
- pro – “locking in 1.4:1 RR on this portion of the trade based on original SL of 0.9140”
- con – “price continues lower & hits TP1, potentially losing 20 pips on this portion if 0.9202 taken out first”
- pro – “if price continues higher portion of unrealised profit is locked in”
- con – “post FOMC volatility could result in SL being hit and price continuing lower to second TP at 0.9062”.
- without a good handle on levels and reactions, and a tad of a gut feeling also, trading in situations where 10-20 pips can seriously alter the risk:reward profile of the trade, not only can intraday volatility and rogue news events cause premature stop-outs, but even a trip to the washroom can transform a winner into a loser since timing is much more influential on these low intraday timeframes;
- staring at the market, babysitting the trade all the way through, is hard on most people’s nerves. This kind of trading requires a hands-on approach but at the same time, without extreme discipline and convinction it is objectively difficult to not “fiddle” with the trade;
- the counter-trend nature of the trade makes it more difficult to take independently from everything else.
Sachin’s experience shows up in his trade management decisions which are quite instructive.
- He is always aware of the dynamic R:R profile of his 2 tranches alone and combined;
- He knows his levels and is not letting the intraday moves distract him from them;
- He is aware of the event risk coming up;
- He always knows the pro’s and con’s of each decision and accepts them ex-ante (no regrets).
Without exaggerating, it’s fair to say that Sachin has given us an example of trade management mastery. Hopefully it is instructive as well as entertaining.
About the Author
Justin is a Forex trader and Coach. He is co-owner of www.fxrenew.com, a provider of Forex signals from ex-bank and hedge fund traders (get a free trial), or get FREE access to the Advanced Forex Course for Smart Traders. If you like his writing you can subscribe to the newsletter for free.
The post How to Manage Your Trades Part 6: Short-Term Trade Management appeared first on FX Renew.