As with the pursuit of any endeavour, it always pays to listen to the advice of experts and renowned masters of the field; trading is no different.
There is an abundance of trading wisdom that new and struggling traders can use to help guide their efforts in the direction of achieving trading success, but really the key points that come up time and time again, present in many of the popular trading quotes that populate motivational articles and trader twitter feeds, relate to the idea of 1. Trading with the trend and 2. Cutting losses short and letting winners run.
Even though these guidelines appear simple and straightforward to follow, for the great many it is often a case of easier said than done. One of the most popular questions we’ve received from traders looking for guidance and help is how to hold on to winning trades? The idea of cutting losing trades for small losses and holding on to winning trades whilst they run on into large profits is obvious very appealing and makes sense mathematically, but from a psychological standpoint it can be extremely difficult to achieve. So let’s break this problem down and see if we can cure it once and for all.
Know What You Are Looking For
When trying to hold on to winning trades a large part of the problem is that traders are often not aware of their objectives when they enter a trade: They may think that price is going down but they aren’t really sure how far and they have no clear targets in mind, nor do they truly understand the chances of a particular trade running on to achieve large profits. Many time a trader might attempt to hold a trade only to suffer a sharp reversal in price which damages their confidence for future trades.
Learning to properly identify clear technical targets can be a big step in helping traders get the most out of their trades. Often a trade will be entered and will be running nicely in profit only to reverse sharply. Hindsight analysis might reveal a key technical area that the trader should have been aware of.
There have been plenty of good long opportunities over the last 3 weeks in EURUSD. Traders entering this move clearly identified the 1.1460 double top area as a target, being key technical resistance and so any traders entering long towards the top of the range should have been aware of this level. Whilst traders long towards the low of the range could have held on playing for a longer move traders getting in late should only have been looking for quick profits into that level, not a fully fledged move as there was little “room to run”.
There is a huge difference between scalping a 15-minute pin bar in a 3 day range and trading a break-down below a long term multi-month trend line. In the first situation it is reasonable to expect a nice 20-50 pip profit from a rotation within the range, but probably quite delusional to think it has the chance to turn into a 2000 pip winner. However in the second situation it would be very short-sighted to settle for a quick 50 pips when there is a much higher chance that the trade could run on to achieve a much greater profit. Similarly, a counter-trend trade will have a smaller profit expectancy (generally) than a with-trend trade and so this is another point to consider.
Key questions to answer for each trade
- Is this an intra-day trade or a longer term trade?
- Am I targeting a small move here or a much larger move?
- Am I trading with the trend or against it?
- Are there any clear technical targets for my trade?
- Does the trade have “room to run”?
As a trader it is important to become adept at identifying and distinguishing between various trade conditions. If you hold every intra-day scalp in the hopes that it will run on for weeks you will most likely end up having an awful lot of trade come back on you. You need to get comfortable identifying the trade for what it is, a short term intra-day move and looking to set targets accordingly. Similarly, if you are trading on the higher time-frames looking to catch a big move using a necessarily wider stop, it can be tempting to bank a quick 100 pips as it happens so fast, but to achieve longevity with that strategy and to stay profitable, you need to hold those trades to achieve bigger targets to ensure you don’t get crushed when your stops periodically do get triggered.
It can be very difficult to adjust between a short term and longer term trading mindset but it is very necessary and indeed all Investment Banks operate both tactical (short term) and strategic (longer term) trading strategies to distinguish between these two very different approaches.
Surviving The Retracement
The other common obstacle that traders face when trying to hold on to winners, is coping with the inevitable retracements that occur within larger directional moves. This is quite an interesting situation when you think that a trader may use a retracement within a trend to enter a trade in the direction of the overall trend but once in a trending move the trader panics at the sight of a retracement and exits his positions.
The fear in this scenario is a purely emotional response: the trader worries that the retracement is in-fact a reversal, rather than a retracement. To a large extent this problem is down to experience, the more experience a trader has in dealing with this type of scenario the better equipped he becomes in coping with the retracement. However, one of the best ways to deal with this specific problem is to develop a methodical way of assessing market moves to help identify when to hold the trade and when to cut it. Trends can sometimes come to an end abruptly and seemingly at no important technical level, so using tools to identify shifting conditions can help keep traders on the front foot.
Order Flow Trader not only identifies the existence of trends but also measures the volume flowing into a trend, highlighting when trend are healthy and in full flow or in periods of declining volume where a potential reversal may occur. The clear gaps within the coloured bands surrounding price highlight these areas but suggest merely the moving of stops either to entry or to lock in further profits, not an exit of the trade. These periods which can often incite panic in traders and cause the premature exit of trades, are carefully navigated by Order Flow which keeps you in the dominant trend until a counter signal occurs.
In the example above we can see clearly just how effective Order Flow Trader can be in keeping you in a trade, surviving the choppy retracements, to achieve larger profits. Note crucially how at point 3, although Order Flow suggests the bearish trend is done and you should exit the trade, following the minor bounce, Order Flow trade gives you re-entry to the bearish trend as price breaks through the range support lows at point 4.
Again, at point 5, look how Order Flow trade highlights potential reversal points but keeps you in the bearish trend for continued profits, surviving a choppy period where you might be tempted to exit your trade for fear of reversal. Finally at point 6 we get a counter signal that suggests we should exit our trade and as you can see, price has recovered much higher ground since. Part of the beauty of using Order Flow Trader to help you stay in trades is that it removes the agonising subjectivity that can really damage a trader’s psychology. Instead of constantly trying to guess whether the market is likely to reverse or not, the trader can simply turn to Order Flow Trader for confirmation
Learning to rely on the volume bands surrounding price can really help to build your ability to hold on to a winning trade and ensure that you get the most of your trade. Importantly, if (as we saw in the example) there are times when you exit within a move, provided that the dominant trend is strong enough, Order Flow Trader will give you re-entry to allow you to profit from the continued move.
More About Order Flow Trader…
With a maximum inter-month draw-down of only 15.1% Order Flow Trader has delivered upwards of 300% over the past 11 years using basic favourable risk:reward parameters on a portfolio of currencies including AUDJPY, AUDUSD, EURAUD, EURJPY, EURUSD, GBPJPY, GBPUSD, USDJPY.
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