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We’ve all had the experience of having an open position that is showing a rewarding profit (say 50, 100 or 200 pips), but has still not reached our final target. Of course, we by our greedy nature decide to shoot for the final target and hold the position.
Then, before we know it, the market reverses and takes it all away leaving us with an awful-feeling breakeven trade, or even worse – a loss.
This experience of letting a winner turn into a loser feels equally bad as a losing trade or maybe even worse since we are losing money that was already won.
In this article, I’m going to share a simple trick that often works for many traders to better protect from such situations. In essence, it’s nothing more than a mind trick but it is useful for most traders and helps them to avoid these painful situations in many cases.
Basically, the trick is to close the profitable position after hitting a satisfying amount of profit – preferably at an important technical area. Instead of waiting for the final target to be hit you can close the trade after an important technical level is reached without waiting for the price to show signs of a reversal from the level.
This is trading on leading indicators and basically, the trader tries to anticipate where the price might reverse. This may seem difficult at first, but once you practice enough of it and get some experience it will be easier to get it right.
Now, you may wonder “OK, great close the position, but what about the final target? What if there are 100, or 200 pips more to be won?”
The answer to that is that after you close the initial trade, you can look to re-enter it - preferably at better price levels and only if your overall analysis suggests that the trade is still good.
Although this does nothing in terms of giving you more information about the market, it very often helps traders to look at the trade in a new way with a cool head which helps to better evaluate if it’s worth taking this new trade.
Because if it’s not worth taking a new trade at these price levels - then it probably wasn’t worth to hold the old one either!
The essence of this trick is that the mind will treat the re-opened trade as a new trade – separate from the previous, although in reality, it is exactly the same trade. But, this simple trick allows us to think about this trade in a fresh way, and therefore most often to take the appropriate risk management steps in order to protect from it turning into a loser. Traders are generally less likely to take the same risk management measures when they have a profitable trade on versus when taking a new trade which is probably why this trick works.
Despite the fact that nothing more than a mind trick actually takes place, this tactic is certainly helpful for most traders. And if you are having problems with these kinds of situations where you lose the pips you’ve already won in the market you may want to consider applying this tactic and see how it will work for you.
We’d be happy to hear your experience.
