Trade-in market currency
When the trade is in the right direction, we will pull the stop loss up / down to lock in the gains gained before adding a new trade also in the current market direction (a manual trailing stop). Simply put, our total Risk will always be fixed (the best case is to reduce it to zero) but the "potential" return will increase a lot, too great, right? However, if you accidentally forget to pull the stop loss before adding a new trade, the account can lose because we are "double trade", even "triple". Moreover, because we will pull the stop loss up / down quite close to a trade that does not apply this strategy, if the market accidentally bounces (test support/resistance, fakeout ...) then it will be considered to lose all, trade even though the loss is not too big (we have already locked profit). Tactics only apply when the market is going very strongly in one direction.
Apply :
- Assuming the EURUSD pair is going down, you see a pin bar at resistance 1.3670 giving a sell signal. It seems that this is quite a good Resistance so you decided to put the stop loss at 1.3700.
- Next, the chart shows that there is no important or clear support level up to the level of 1.3200, so you decide to aim for a rather large Take Profit.
- Your risk is $ 200, for simplicity consider you selling 2 mini-lots at 1.3600; 100 pips Stop Loss x 2 mini-lots (1 mini-lot = 1 $ / pip) = 200 $.
- You aim for a ratio of R: R to be 1: 3 for this trade, so Take Profit is at 1.3300 and you will add 2 more SELL orders, 1 when it reaches 100 pips, 1 when it reaches 200 pips.
- With this way of trading, you absolutely can take huge hits (10: 1 is also not impossible, on the days when the market "waves"), but of course, trading like this needs experience and a little luck.
- Should be prepared to touch SL or break even because just 1 retrace is enough to "knock out" our whole pyramid because SL has pulled down quite close.
- Always remember to drag SL with the trade, this is the most important point of the strategy, if you don't pull the SL, you can lose the account in the blink of an eye because many trades accumulate.
- Never add to a losing trade, this is not Martingale!
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