Guest Commentary: Letting Winners Run
You have probably heard the saying about cutting losses and letting winners run. While some traders are tempted to move their stop losses, the sanctity of Stop Loss orders is easy to explain: just don’t move them.
But how do you let winners run? In ranging markets, the winners will never run too far, but with trending markets, there are quite a few ways to do it. Here are some ideas:
- Keep your Take Profit order: The same rule regarding to stop loss orders applies here – just let the trade run its course. Keeping both sides of the order means that your planned risk/reward ratio will be kept. This is the straightforward way.
- Add to a winning trade: When trading a breakout, you may encounter a false one (and may want to trade it). If the break isn’t false, you may assume that the trend will continue for some time and will go far. You may want to add to this winning trade. The average entry point will turn less favorable, but if it is a strong trend, you can enjoy additional profits.
- Re-enter the trade with the profit: As suggested here, you can leverage the profit. You can exit the trade and re-enter it in the same direction, with the earned amount as the guide for the Stop Loss. This way, you will be risking only your profit and not additional funds.
- Move both SL/TP orders: If you see that your trade has a higher potential than your initial Take Profit order, you can widen it. However, you may want to defend part of your profit or at least avoid a loss, by moving the SL at least to the original entry point. Moving both orders in the same number of pips will make things easier to control.
These are the general ways of letting winners run. There are surely more ways. Do you let winners run? How do you do it?
Further reading: 5 Most Predictable Currency Pairs – Q2 2012
By Yohay Elam, Forex Crunch
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