Trade Managements is one of the pillars of successful trading.
We can enter good trades (which is difficult in itself), but still not be profitable because our trade management skills/techniques are simply not there.
In this post I want to talk about the easiest way to manage trades.
(Before we start we must mention that an actual EASIEST way is hugely dependent upon each trader's unique personality and circumstances. What works for one may not work for another and vice versa. There is no precisely one answer).
With that being said, there is a way that is much less popular and flashy, but that helps to trades so much.
That is: SCALE OUTS.
Scale outs can be extremely frustrating and cause a lot of FOMOs and FOFR (fears of future regrets).
Let's talk about cons with examples:
Let's say you enter a trade that has 3:1 reward risk ratio. You decide to take 1/2 off a trade off at 1:1 area, and then price continues to go to your target. In this example you just made: (0.5 * 1) + (0.5*3) = +2.
So, instead of making full +3 points, you think, you make 'only' +2. This can be frustrating. So next time you decide to not do scale outs, but watch what would happen:
Price goes to your 1:1 target, and then turns around and you get tapped for a full -1 loss. Had you scale out You'd make: (+0.5 * 1) + (-0.5 * 1) = 0. Effectively you hit a breakeven trade.
If your strike rate is at 50%, then the results profits wise are exactly the same: (+3 -1) = +2 and (+2 + 0) = +2. However, the scale out route flattens your emotional volatility all the way down and instead of being elated for banking +3 -> you bank slightly less at +2. On the other hand, instead of losing -1 you hit Breakeven for 0. Your emotional curve and psychological capital are thus preserved and it's much much EASIER to make better decisions throughout the trading session, week, and month.
Scale outs aren't glamorous because they don't spark that "BIG TRADE" dopamine. But what it does is helps you to stay in the game and actually PAY YOURSELF quick whenever your analysis proves to be profitable. Instead of waiting for full +3, you actively taking profits and paying yourself, while the long-run results are relatively similar. Even if longer-term results would be smaller - the price is worth to be paid for that emotional flattening. But it won't be that much of a difference anyway simply due to statistical distribution. Price often does go 1:1, but much less so in does go to 3:1. Banking these frequent 1:1s both reduces risk AND gives profits.
Scaleouts work GREAT if you are one of those traders who can benefit from them. There is another group of people, who perform much better with SCALEINs. But that is a story for another day.
Lightwork_
We can enter good trades (which is difficult in itself), but still not be profitable because our trade management skills/techniques are simply not there.
In this post I want to talk about the easiest way to manage trades.
(Before we start we must mention that an actual EASIEST way is hugely dependent upon each trader's unique personality and circumstances. What works for one may not work for another and vice versa. There is no precisely one answer).
With that being said, there is a way that is much less popular and flashy, but that helps to trades so much.
That is: SCALE OUTS.
Scale outs can be extremely frustrating and cause a lot of FOMOs and FOFR (fears of future regrets).
Let's talk about cons with examples:
Let's say you enter a trade that has 3:1 reward risk ratio. You decide to take 1/2 off a trade off at 1:1 area, and then price continues to go to your target. In this example you just made: (0.5 * 1) + (0.5*3) = +2.
So, instead of making full +3 points, you think, you make 'only' +2. This can be frustrating. So next time you decide to not do scale outs, but watch what would happen:
Price goes to your 1:1 target, and then turns around and you get tapped for a full -1 loss. Had you scale out You'd make: (+0.5 * 1) + (-0.5 * 1) = 0. Effectively you hit a breakeven trade.
If your strike rate is at 50%, then the results profits wise are exactly the same: (+3 -1) = +2 and (+2 + 0) = +2. However, the scale out route flattens your emotional volatility all the way down and instead of being elated for banking +3 -> you bank slightly less at +2. On the other hand, instead of losing -1 you hit Breakeven for 0. Your emotional curve and psychological capital are thus preserved and it's much much EASIER to make better decisions throughout the trading session, week, and month.
Scale outs aren't glamorous because they don't spark that "BIG TRADE" dopamine. But what it does is helps you to stay in the game and actually PAY YOURSELF quick whenever your analysis proves to be profitable. Instead of waiting for full +3, you actively taking profits and paying yourself, while the long-run results are relatively similar. Even if longer-term results would be smaller - the price is worth to be paid for that emotional flattening. But it won't be that much of a difference anyway simply due to statistical distribution. Price often does go 1:1, but much less so in does go to 3:1. Banking these frequent 1:1s both reduces risk AND gives profits.
Scaleouts work GREAT if you are one of those traders who can benefit from them. There is another group of people, who perform much better with SCALEINs. But that is a story for another day.
Lightwork_
Lightwork Trading