Avoid Turning a Winning Trade into a Losing Trade

Todd MitchellWell, quite honestly that’s a pretty vague statement.  I mean, what constitutes a winning trade anyway, right?  Just because you enter the market and the market happens to move in your direction a bit doesn’t necessarily constitute a winning trade.  You need to have logical profit objectives in place before you even enter the market.  Once you have these profit objectives based on your market entry, that’s when you can start to gauge whether or not stops need to be moved so your winner doesn’t turn into a loser.  Without at least one logical profit objective in place there won’t be an objective market point to tell you when to move your stop to breakeven, or even to lock in some profits for that matter.

Here’s a quick example; you have a logical profit objective in place and the market gets real close to that target, then it stops…moves sideways a bit…and finally begins retracing back toward your entry.  What do you do now?  This happens all the time.  As you know by now, you must have a plan in place, let me give you mine. 

My personal rule for avoiding letting a winning trade turn into a losing trade:

I move my stop loss to breakeven (or just below the lowest low after I got into the long trade – vice versa for a short trade) after I reach 80% of my first logical profit objective.  That’s what I typically do and that’s why I generally don’t take a loss (very small if any) on trades that 80% in my favor towards my profit objective.  It’s really that simple

All too often traders’ greed takes over and they decide they ‘deserve’ that last point or couple of points of profit…hoping for the ‘home run’ trade.  I have to say that you probably won’t make it in this business if you’re constantly looking for that ‘home run’ trade.  You can certainly look to do this, but only after your logical profit objectives are first hit.  And you also must be trading multiple contracts in order to ‘trail’ your stop for that potential ‘home-run’ trade. 

There’s a second real important trading rule you should also remember when day trading…

If you’re somehow still in a day trade as we near the market close, you should take off your position before 4:15 PM EST. This will sometimes give you a loss instead of the profit you think you might get if you hang on just that little bit longer.  I personally typically do not take trades in the last hour of trading (3:15PM EST to 4:15PM EST)…but that’s just me and my personal trading style and preference.  However, if you do decide to trade in the last hour just be sure to be out of the market by time it closes at 4:15PM EST.  This rule of course only applies for those of you that day trade.

Just remember this: if you want to make it as a professional trader, you trade on probability, not hope. You have to trade your plan. That means you have to sometimes just bite the bullet and accept that you’re not going to make money on a particular (day) trade.  So, simply get out according to plan, and approach the new trading day with a fresh and clear mind.

After all, letting a day trade go overnight is not part of your plan as a day trader, is it?  And the hope that the overnight session might make you whole again is just that: a hope.  Believe me when I say ’you are only inviting disaster when you deviate from your trading plan’.

My strong suggestion (after many years of experience) to you is that you do not let greed or fear overrule your trading decisions.  If you do, becoming a successful trader will be farther from reach, I can assure you of that.