Money management is a core ideology in the trading world. This money management comes in both the form of managing your profits correctly, and correctly managing your losses. Managing your losses can come in many forms from cutting them short to stopping trading from the day. Managing your wins can come in similar forms, such as proper take profit placement and stopping trading after certain criteria have been met. Regardless of your management method for both wins and losses, having a system in place is required for your trading to progress to the level that allows for you to live off of your trading and even to have it just as a secondary income-generating stream.
When it comes to losses, one of the most important things you can do is know when to lose. One thing you will see in Shawn Lucas’ trading is a large stop loss. This stop loss, however, is not what he relies on to close his trades. What he relies on to close his trades is manual closure. This allows for Shawn to allow his trade to run for almost the whole duration of the trade with the stop loss only there to trigger if a sudden jump happens that would make closing the trade yourself difficult. This tactic is mainly used in scalping strategies where you can close the trade at any point.
An additional loss management tactic takes a different approach but can be just as vital to your trading success. This tactic is to stop trading for the day or session once a certain loss criteria is met. It can be anything from a loss of 50 pips to a loss of 1.5% and anywhere in between. This can aid in your trading when a particular trading session is not performing at par for you. When you are in a particularly abnormal downtrend on your daily routine, this downtrend will generally continue due to either emotions or your specific strategy not working well in market conditions. Due to this, putting a hiatus on your trading can sometimes be the most preventative measure to take.
When it comes to managing your wins, on the other hand, take profit placement is important. Take profit placement can rely more on market conditions than anything. While a standard take profit is great because it gives you one on the chart, the position of it matters. Unless you're only going for about 2 pips at a time like Shawn Lucas, the take profit will probably need to be adjusted to not just have the price falling short and potentially losing.
Similar to having a losing value where you cease your trading for the day, profits can be looked at in the same light. Some traders will become overconfident and continue trading more and more until all their profits are handed back to the market. While if you keep trading, it may work in your favor and you will end up making more profits, there will come a point where profits are capped and trades start losing. The more confident you become, the more you feel comfortable playing with higher take profits and higher lot sizes which could be disadvantageous.
Knowing your goals and having them as part of your trade plan is crucial for success; goals in both terms of what to win and what not to lose. As the adage goes, “you have to know when to hold them and know when to fold them.” Trade management comes in many forms. Set up guidelines based on your strategy and market conditions that allow or you to make and maintain profits through your trading career. The FOREX market isn’t a casino, the house doesn’t always win. If you don’t manage your profits and losses though, you will lose in the long run.