Forex Trading: Monetary management techniques (breakeven, partial closure and trailing stop)
Whether it is more important to know how to enter and exit a trade well, how to choose the best broker, or how to manage your wins/losses is an eternal debate. Ideally, you’ll be good at everything. Right.
Not everything comes down to getting in and out at the right time; there are a number of techniques that help us get the most out of the trade that every trader should know about.
Specifically, in today’s article we will see three very basic techniques of monetary management during the course of a trade that will help us secure our earnings if the trade is positive for us: breakeven, partial closure of positions, and trailing Stop.
How often do you find yourself in a position where a price moves a few pips in our favor, but then comes the moment in which that movement turns around, reaches our stop loss and we leave with loss in a trade that could have been positive .
The technique of breakeven consists in ensuring that a trade that has moved in our favor does not end up resulting in a loss. This is automatically programmed on most platforms indicating the precise moment in which we want the stop loss to trigger.
For example, if the price moves 15 pips in our favor, we order the platform to place our stop loss of 10 “negative” pips below the entry just at that price of entry, known as price or breakeven point (net of the spreads of course).
Partial closing of positions: securing benefits
Another strategy that can also be followed to mitigate the circumstance described above, and which is also possible to carry out in parallel to the breakeven, is the partial closure of positions that allow us to materialize benefits in our trade as it develops in our favor
That is done by closing a certain percentage of it as the price reaches areas that are strategic for us. Thus, if we have entered with 1 lot in the trade, we can close 0.5 lots to guarantee 50% profit when the price has moved 20 pips in our favor, close another 0.3 lots when reaching that resistance, and leave the remaining 0.2 batches in the market in case the price broke the resistance and began a trend movement in the same direction of my trade.
The trailing stop: chasing the price movement with the stop
As you will have deduced from the technique of partial closure of positions, although it is true that we are securing profits as the price moves in our favor, it is also true that with these partial closures we are losing strength in the market by diluting our position. It is obvious that in the previous example, in case of breakage of that last resistance, it will not be the same to be inside the market with 0.2 lots than to be in it with the initial whole lot.
For this, there is a technique that allows us to guarantee the benefits of a winning position without having to give up our initial exposure to the market, ie, maintaining the same lots with which we enter the trade at all times: the trailing stop.
The technique of the trailing stop is to move our stop in the direction of the trade as the price is developing in our favor. As in the previous cases, this is a technique that can also be automated in most trading platforms. Simply specify how we want to pursue the price with our stop: every 15 pips that the price moves in my favor, I raise the 5 pips stop to ensure that benefit in case the price is turned, for example.