Mastering the Art of Position Management and Why It Matters

Managing trades is a crucial part of finding success in trading. While it can be easy to get the entry points right, for example by simply setting limit orders, properly managing them and knowing when to exit is the difficult part.

When things go well, traders might be lured to book profits too early when seeing a nice unrealized profit on the trading platform, or keeping the position open for too long as they think they just have the “Trade of the Year” running. On the opposite side, things can go wrong when managing losing trades as well – such as refusing to close losing positions as they think it is just about to reverse and go into their favor, or freaking out as soon as the position goes into the negative and not even giving it a chance.

There is no “right” or “wrong” way of managing trades – it largely depends on what kind of trader you are and your trading style. Let´s have a look at some of the trade management methods.

Pre-Determined Exit Levels

Beginners might find it easier to set a stop loss and take profit order prior to entering a position, and sticking to it. Clearly, if you get stopped out all the time, you need to review your strategy and see what is going wrong. However, being disciplined and sticking to the pre-determined levels can help you in finding out if a strategy is actually working or not. You might have a good strategy, but if you close a winning trade way before it reaches the take profit level because you want to book in the profit, while keeping losses running as you don’t want to book losses, you will still fail.

Trading Without Exit Levels

Experienced traders might opt for trading without any pre-determined exit levels, although this is definitely the riskier option. However, some traders could decide to only set a stop loss level when opening the trade, and managing this as the markets move. This style of trade management requires discipline and experience. It might work well for scalpers who are in-and-out of positions within minutes, or long-term traders who have plenty of time to figure out how they want to manage their position.

Trailing Stops

Trailing stops can work well in trending markets. For example, a trader being long Gold when the precious metal is in a strong uptrend might gradually move the stop loss order higher as the price is rising. With this, the trader is protecting his/her profits if the market suddenly reverses. However, traders must be careful not to use this method in ranging markets, as they would get stopped out frequently.

As there is no correct or incorrect way of managing trades, the best way to find a suitable method is to practice on a demo account. Traders who are impulsive and struggle to maintain discipline, might opt for pre-determined exit levels. On the other hand, experienced traders might feel comfortable by not setting any pre-determined levels and manage their position as the market moves.

The information is not to be construed as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product, or instrument; or to participate in any trading strategy. Readers should seek their own advice. Reproduction or redistribution of this information is not permitted.