Trading strategies uncovered: How to manage your profits and losses
You set out to make money from trading. Whether you trade single stock futures, contracts for difference or spread trade, profits are vital to continuing to trade and your overall success.
As much as risk management is about looking after the downside to a trade, the upside is also important.
So what should you do when a trade you're in does well?
Read on to find out…
The secret to a successful trading strategy
When you trade, it pays to always think ahead and consider the possible scenarios that lie ahead. This should all be part of your trading strategy
You need to think about what could happen in a trade if it goes wrong and if it goes right.
To limit your downside risk, you need to use stop losses to protect your trading capital. For example, you may decide that you’re willing to let a trade lose 20% before you’ll exit it.
It’s also important to think about how to handle profits. How you handle these is vital to your trading success.
If you don’t have a strategy to deal with your profits, you could end up losing money if a trade takes an about turn.
So it’s vital to have a plan in place to deal with your profits.
A trading strategy for taking profits
Your trading strategy should dictate a take profit level.
So what should you do if a trade is going really well?
You can leave the trade to hit your take profit level and take your money.
Another option to consider is to close some of your position, taking at least half of your profits, and leave the rest in the trade. Tighten your stop loss up to protect you from the trade moving against you.
But at this stage, you should never put new money into a trade. This just increases your risk. You want to take advantage of any momentum remaining in the trade with profits you’ve already made.
So there you have it. How to manage your losses and profits.