Trade management can be frustrating, no doubt about it. Have you ever found yourself wondering:
- Do I hold on or close the trade here?
- How do I know when the conditions are right for rolling over a trade?
- How do I know when to trade with intraday objectives?
- How do I know when to trade with multi-day objectives?
You’re not alone. These questions represent some of the more frequent concerns that frustrated traders face. The simple answer is that one size does not fit all objectives. Sometimes the market will give intraday traders the advantage, and sometimes it will be the multi-day traders that have the advantage.
Let’s see how maintain a clear mind, through the various market conditions.
Intraday Objectives: Advantages and Disadvantages
In the chart above is a signal trade we took a couple of days ago: long UsdJpy. Our trades, from Tuesday to Friday, have an intraday objective. As such, we are looking to benefit from intraday momentum and are cautious of intraday reversals – which happen most often during the New York session.
There are advantages and disadvantages to having intraday objectives. Some advantages are:
- short trade duration (less market risk)
- go to bed flat each day (no overnight risk)
- higher number of opportunities
Some disadvantages are:
- short trade duration (avoiding market risk, which also means avoiding potential opportunity). Large trades take time to develop, so keeping trades short also means giving up big runners.
- Avoiding overnight risk (which also means avoiding potential favourable excursion during the Asian hours)
- High quality entry conditions are not always available
As you can see, more than advantages or disadvantages we need to talk about “trade-offs”. Each risk we avoid, is a potential reward we are also avoiding. Since there is no perfect trade-off or solution, the important things are:
- Be aware of your choices and abide by them
- Make sure your risk reward is potentially favourable at trade inception
- Make sure your exits are in line with your objectives
For example, in our Mar 9th trade on UsdJpy, we continued to monitor the market’s action and closed our trade after a potentially bearish pin-bar formed during the New York session, having slightly “faked” the current day’s high before closing lower.
This is an evident sign of hesitancy and as we had an intraday objective, we were required to close the trade.
Do not get trapped in hindsight analysis: we did not know that the market would have continued higher into the next day. Nobody can foresee the future. Rolling over the trade, by adopting a multi-day stance, would have allowed us to capture that upside but it was not our objective when we opened the trade.
This is the real trade-off of intraday objectives: you give up potential multi-day trades (and you will have to re-enter into the same trend multiple times, increasing timing risk), in favour of short-term gains. This model will likely have small, frequent gains and the occasional stop-out.
Multi-Day Objectives: Advantages and Disadvantages
Given the example above, it might seem like rolling-over trades at every possible occasion sounds like the better stance. Not so fast.
The chart above is an example of a trade that we were considering as a multi-day opportunity. We ignored the usual bullish reversal candle that formed into the New York session but got caught in a violent retracement that pushed as high up as our initial entry.
One disadvantage of adopting a multi-day stance is that sometimes your intraday profits will vanish and you will be forced to cut the trade at break-even or with a small loss. It’s difficult to digest these situations unless you set out with a clear mind and clear objectives. You will therefore be prepared to accept this kind of trade-off: giving up intraday profits in favour of less frequent yet larger profits when the market really does perform well.
The example above represents the recent performance of Gold. For the past couple of weeks it has been a one-way trade that rewarded multi-day objectives.
One Exception to the Rule
The chart above illustrates the only real “exception” to the rule. EurJpy, back in February 2017, pushed downwards in line with it’s trend, with force. It covered roughly 100 pips before New York came online. When the market offers such juicy rewards in so little time, there is a logical reason to take your profits early – as soon as the market starts to consolidate. These occurrences are rare, and are frequently followed by equally violent reversals (as we experienced in this occasion as well).
Over to You
As we suggest in our Forex System Development Workshop, create multiple systems to reach multiple objectives – but only after you can execute each system blindfolded. Otherwise, it’s easy to get confused and ultimately undermine your success.
Don’t get stuck wondering whether you should hold or fold. Always have your objectives clear ahead of time. It’s possibly the only way to maintain balance and have peace of mind, independently from what happens after you make a decision.
About the Author
Justin Paolini is a Forex trader and member of the team at www.fxrenew.com, a provider of Forex signals from ex-bank and hedge fund traders (get a free trial), or get FREE access to the Advanced Forex Course for Smart Traders. If you like his writing you can subscribe to the newsletter for free.