My Trade Management Guidelines…

As we have already discussed the entry techniques that I use, its time for us to manage the trade until our targets are hit. Trade management is a skill and it gets better and better with experience. You must choose your guidelines that support your psych. What I am writing here in this article are just guidelines, not rigid rules. Depending on the market environment, we must be flexible to take decisions. These are just a route map. Please make a note of it before proceeding further.

When I say trade management, there are two main things we must focus on-

Scratching the trades.
Stop Trailing.
In addition to the above three, there is a lot to look at. When to place a limit order entry and when to stick with the breakout entry, when to trust the trend and when to take a counter-trend trade, When to trust a breakout and when to buck it, when to tighten the stop and when to exit immediately with a market order etc. etc. There are so many things to learn and that can only be done when you make your hands dirty in trading. Your trading journal is the only thing that can help you with this and I am emphasizing again, there is always room for improvement in this area and you can learn at least one lesson every day from the market. Journal them and that is going to be a gold mine for you after a couple of months.

  1. Scratching the trades:-

Scratching is a process where you exit a trade before none of your exit orders, ie. stop loss and targets are hit. When the market is not behaving the way you anticipated after your entry, and neither of your exits is getting hit, you must reassess the situation from step 1. Sometimes, it’s better to exit your existing position to reassess as that frees you from the emotions you face when you have a position in the trade and it is not behaving in your favour.

This is an area that I struggled at the early stages of my trading. I used to scratch too early and then market moves in my trade direction. I used to exit the second unit too early with a fear of losing the paper profits. It still happens. Perfection can never be achieved in trading. Learning from mistakes and improving the next trade is the only option we have.

You might also face the same problems. But remember, you are scratching for reassessing the situation. So you must be ready to reenter when the premise is still valid and the market presents a new opportunity.

Once you make a decision to scratch the trade, you will have two options.

Exit immediately or
Bring the stop loss closer so that market has a chance to move in the trade direction.
Here also, it completely depends on the feel for the market. You must decide the right one that is apt for the market environment you are trading in.

The first option doesn’t need any extra analysis. Just exit at the market price if you feel so.

In the second one, we must work on our exit. Sometimes, I bring the stop loss closer. Sometimes, I bring the targets closer. Sometimes, I bring both the stop loss and targets closer. It depends on how weak the market is in the direction of your trade.

8 out of 10 times, our second target will not get hit. We must use the second technique for a better exit of the second unit.

We are giving entries when we realize that someone is trapped in our setup region. Once the LWP is hit, I expect the market to show strength in the direction of the first target. If that is not happening, then I look to scratch. Focus on this thing and it will save you a lot of bucks. These days, I am not letting my full stop loss to hit most of the time and I am happy with this improvement.

Simply, when the market is not behaving the way you anticipated, scratch the trade. Don’t look for the stop loss to hit. It becomes easy with experience.

  1. Stop Trailing :-

This is the most important aspect of our trade management. We should trail our stop loss when the market starts to move in our favour in such a way that it should decrease the risk and increase the opportunity.

We have placed the initial stop loss after the entry at a place where when the market reaches, it will invalidate our premise.

We use the same rule in trailing our stop to decrease risk and improve opportunity. When the market starts to move in our favour, find areas on the chart which will invalidate our premise when the market reaches there. Sometimes, you will be exited early and the trade hits your target. Let it be. We are not trying to make profits in all the trades. Profits are made on a series of trades and consistency is the key.

How to find those areas??

Simple… Look to the left and market provides clues. I am sharing my observations, it might be useful for you too.

If the trade is in the direction of the present trend..

Look at the recent impulse moves (swings in the direction of the trend) in the trend. If the impulse moves are strong and there is no overlapping of the candles in the impulse swing, trail the stop loss to lows of high close bull candles (in an uptrend) or to the highs of the low close bear candle (in a downtrend) in the trading timeframe.
If the candles in the recent impulse move are overlapping, trail the stops to recent pivot low when the recent pivot high is broken (in an uptrend) or to the recent pivot high when the recent pivot low is broken (in a downtrend) in the lower timeframe chart.
In both the above cases, in a lower timeframe, if there are a weak pullback and price failed to break the previous pivot high/low or price got rejected immediately after breaking the pivot low/high, look to scratch the trade as it failed to continue. You can re-enter when a proper opportunity is shown.

If the trade is in the opposite direction of the present trend…

Manage the trade very aggressively. It must show strength immediately after LWP is crossed. Or else, it might be a trap to continue in the trend direction. If strength is not shown, look to stop and reverse the trade for a small profit/loss.

Only take a counter-trend trade at the structural boundaries. Never take it in between the structural S/R no matter how sweet the risk to reward is.

If the trade is TST of range S/R or structural S/R…

Better to stick with limit order entry after enough evidence of weakness is shown at the boundary Most of the time after a BOF or a stall at support, the market gives a retest of the boundary.

If a climatic move is evident……

Look for the weakness in the direction of that move at the structural boundary to enter a counter-trend trade. But manage it aggressively.

This list can go long and long. I will leave the remaining part to you. Make mistakes, learn lessons and extend the list. But remember, these are not perfect. These are what I follow in my trading