Like a lot of traders out there, when on a winning streak and you are making money you start to feel really confident. However what eventually does happen? The market turns against you yeah? This is where the market decides whether you are a great trader or not. It happens to all traders however there is a really simple way to avoid the worst from happening. And i call it locking in your profits.
Many traders get so confident that they ignore the idea of locking in, when in reality by not doing so it is stopping there account from growing. This is one of the most important aspects of money management. Protecting your good investments.
How to Lock In Profits?
You have two options as well, one is locking in by manually adjusting stop loss to just above break even when the trade goes to 40 to 50 pips profit and the second way is to use a trailing stop. One example of a trailing stop is a 50 pip trailing stop. This means that each 50 pip increment the market moves the stop will automatically adjust to that level. You still need to set an original hard stop so remember this, trailing stops only work for when trades go in your favor and they can be set to any number.. So if you are only going for 30 pips a trailing stop of 15 can work as well. It all depends on your targets overall.
The point of locking in profits as soon as possible is a simple strategy. Heck, before i used it i used to get a lot more losing trades, it took me a while to change to this simple concept however i lost many trades in the process.
Another aspect to think on as well is that by doing these lock ins it allows us to mentally take our mind away from that particular trade and allow it to go to the complete target. Like i said before in many of my posts we always want to go for a good risk reward while at the same time protecting ourselves on the way there. It is all good and well to just shoot for a target, but remember this is your money so guard it on the way, that is one thing we can fully control in Forex.
What will Happen Otherwise? You Are Risking More…
If you do not lock in profits you will find that some of your in profit trades will actually hit your hard stop where you actually lose money. And i tell ya there is nothing more frustrating than when a trade goes 40 to 50 pips your way and then for it to turn around into a losing trade. It just does not need to happen, so this is a lesson learned for all.