Hi and A Happy New Year to you. Welcome to the New Year’s edition of the bulls versus the bears.Today we are going to learn about what to This the most important forex trade management question you are ever going to ask yourself.Why? Because failing to answer this question could be the difference between you being a prosperous forex trader and you hitting downright poverty.
When you master price action trading like the back of your hand, you need to learn how to manage your trades once they go live. You cannot afford to ignore this most important part of the trading process. Failure to follow this part of forex protocol could cause your account to blow up into smithereens. You may find what you believe is a price action setup made in heaven. But then that perfect setup could turn into hell real quick if you don’t manage it properly. So what we’re going to do is learn a few valuable tips on what precautions to take after entering a forex trade.
The first tip is:
By Averaging in you are using your profit from your first trade to pay for the next trade. The neat thing about Averaging In is that it allows you to trade without fear. The danger here is you risk being stopped out at breakeven point. Averaging In works perfectly in strong trends. But you ABSOLUTELY DO NOT want to push your luck averaging in during trading ranges or slow markets. You’ll end up shedding a lot of tears. Just sit back and wait for the price action setup to form at a key level once the market has pulled back. A classic example would be your initial trading position moving in your direction and then pulling back 50% back to your original entry . This pull back then results in a pin bar being formed at a key level. The pin bar formation would be the perfect place to average in to add to your trading position.
Please DO NOT add to your trading position just for the sake of it. You must have a price action reason for doing that. Let’s see the Average In technique in action.
Ladies and Gentlemen, This the Averaging In technique action courtesy of the EUR/USD pair. As you can see the EUR/USD pair is being sold 1.4450with a mini lot. As you can see the trading position locks in on a 100 pip profit. But then the big players turn around to form a fakey setup at your initial trading – position something rookie traders easily fall for. When that happens you add a second mini-lot armed with a 50 pip stop loss. You then slide your stop loss to the first stop to lock in a 50 pip profit. Now if your second trading position does a U-turn and smashes your 50 pip stop loss, your first position stops you out for a 50 pip profit and helps you land at breakeven.
You’re probably saying to yourself”Hmmm.. This is a great way to add to a trading position that is moving in your favor.” But, you may end up at breakeven point, and still lose all your money. At the same you could make twice as much money as well. In others words Averaging In can be a a double-edged sword if you allow it to.. Let me sound off with a warning though.You NEVER, I repeat, NEVER add to your second trading position without adjusting your stop loss on the first trading position. The whole idea behind Averaging in is that you move your average entry price close to the market price. If you make your price double, and don’t put a trail on your stop loss, you will cause a tsunami-size hole in your forex trading account.
Speaking of Trailing Stops, how about
A Few Trailing Stop Techniques.
The 50% Trail Technique
One popular trailing technique is the 50% trail technique . Basically you are trailing your stop up to 50% of the distance between your trade entry and the latest high/low as the trade moves in your direction. Of course as the market moves in your favor the profits start rolling in. The 50% trail technique gives your trading position more room to roll in the profits. But let me sound a little warning though! You could also lose all your money if your trade U-turns and slips below the 50% level and stops you out into the stratosphere. Let’s look at an illustration of the 50% level trail stop technique
Ladies and gentlemen, here is the 50% trail technique in action. As you can see price has moved halfway in your direction. And when that happens you just lock in your pro Like I hinted earlier, the price can make a dramatic U-turn, go beyond the 50% mark and stop you out. So keep your eyes and ears on the alert for that possibility. And by the way, it pays to move your stop loss to break-even point once price hits your take profit.
You can also look out for support and resistance levels in the event that your take profit gets tapped by the price. At support and resistance don’t just concentrate on the 50% stop trail. Look out for a confluence of factors such as price confirmation signals and the 50% stop trail.
Another trailing stop technique you could use is:
Another popular stop loss technique is through the use of moving averages. I’m sure some of you are like”Yeah we’ve heard of moving averages.” Well for those who don’t know, , moving averages strike out previous prices within a specific time frame and are nicely displayed in a straight line on your price chart. They are useful for identifying hot trends, and kicking out unnecessary noise on the charts. I’m not going to get into detail on moving averages for purposes of the subject at hand. But if you want to know the workings of moving averages look up my two part series We’Re Moving Averages Part I and Part II.
So how do we use a trail stop with moving averages?Well, basically you can do it three ways:
- You can pick the trend you want to take a ride with
- Use the appropriate moving average
- Head for the exit when price moves beyond the trailing stop.
You can use the moving average three ways. You can go short term, long term, and mid -term. If you want to go short term, you can cruise with a 20 day EMA(Exponential Moving Average). If you want to go to medium term, take a ride with the 50 day EMA. But if you want to go long term and rack up the profits for months , jump on the 200 day EMA. let’s take a look at each of these three moving averages starting with the 20 day EMA
Ladies and gentlemen, here is what a trailing stop of the 20 EMA looks like.20 EMA represents 20 days of price action within a particular month. And the red line represents ts the strong uptrend during those 20 days, As you can see, the 20 EMA captures the uptrend very nicely in the way it aligns itself with the bulls(uptrend). Now once price closes below the 20 EMA just make your exit gracefully. Or else your account will be feeling a tsunami that day. Now let’s take a look at the 50 EMA.
Ladies and gentleman here is the 50 EMA representation on the chart. the 50 EMA represents 50 days of trading on the charts. The nice line straddling along the charts represents the strong bullish trend. You can place your trailing stop and make your graceful exit once the price goes beyond the 50 EMA barrier.
Finally let’s take a look at putting a trailing stop using the 200 EMA
Ladies and gentlemen here is an illustration of a trailing stop in action via the 200 EMA using the EUR/USA. pair. In case you’ve forgotten, 200 EMA represents 200 days of price action from November all the way up to September. The red line reflects the price action from November all the way up to September And the red circle represents the stop loss, As you can see the price has closed below the 200 EMA. Now would be the perfect time to make your exit while the exit door is still open with your profits still in one piece.
The 200 EMA is perfect if you want to go long term. You could make a lot of moolah (money) using this strategy. By the way,you don’t need to stare at your screen all 200 days. Same goes for the 20 EMA and 50 EMA. You’d go totally insane doing that. Just set and forget and let the market do the heavy lifting for you.
That’s a wrap for ”What Next After Entering A Forex Trade?” This is the most important question you ‘re ever going to ask.And it could be the difference between prosperity and extreme poverty. Yo do not want to just enter a trade and just hope that some silver bullet racks up the profits. Forex trading strategies such those that we’ve just discussed will almost certainly help you safeguard your trades. Next time we’ll discuss how not to exit trades too early.
So til next time take care.
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