I got another real-world example of manual trade management for you this week.
It’s a day trade in GBP/USD I found myself in a couple of days ago. The GBP has been a really nice market to trade lately providing plenty of swings and volatility.
The plan was to get in at a price level where I expected buyers to come into the market around 1.3070, using a relatively tight stop of 20 pips. I had no clear profit target for the trade but wasn’t expecting more than a decent bounce. I also was aware that the market might run into trouble around 1.3120 so I knew I had to watch closer should it approach that level.
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Here’s what happened. I got my fill at 1.3070 and shortly after the pound showed me that I wasn’t completely wrong with my idea. Once prices had moved to 1) (see chart) I moved the stop below the lowest low since I got in to 1.3060 to reduce the risk by 50%.
At 2) I was up quite nicely already and moved my stop just slightly below the entry price at to 1.3068. After that prices consolidated between 1.3080 and 90 for a while. Until at 3) prices started to move and exploded about 40 pips within minutes to the upside. This I hadn’t expected, probably some news hit the market.
Now 40 pips isn’t a totally crazy move but I had expected this to take hours so this has been a windfall profit at that point. What to do now? I’ve been up about 60 pips with an initial risk of 20 pips. That’s more than I had been looking for so I could have simply closed out the trade and take the profit. But as the pound was exploding in a parabolic way without any corrections why not just trail the stop really tight and see how far it goes?
That’s exactly what I did at 4) and so I got stopped out at about 1.3120 with a nice profit of 50 pips.
So one way to deal with windfall profits is to not get greedy and start locking them in more and more tight. The more parabolic the move gets, the more aggressive you might want to move your stop. Especially in the currency markets these moves don’t tend to carry on for too long.
Happy Trading!
CFTC RULE 4.41 - HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.
Editors’ Picks
EUR/USD edges lower toward 1.0700 post-US PCE
EUR/USD stays under modest bearish pressure but manages to hold above 1.0700 in the American session on Friday. The US Dollar (USD) gathers strength against its rivals after the stronger-than-forecast PCE inflation data, not allowing the pair to gain traction.
GBP/USD retreats to 1.2500 on renewed USD strength
GBP/USD lost its traction and turned negative on the day near 1.2500. Following the stronger-than-expected PCE inflation readings from the US, the USD stays resilient and makes it difficult for the pair to gather recovery momentum.
Japanese Yen trades just shy of 157.00 versus the USD
The Japanese Yen weakens across the board after BoJ announced its policy decision. A shortlived spike in the Yen may be testament to an attempt by the Japanese authorities to intervene. US PCE Price Index shows higher-than-expected inflation but does little to impact USD/JPY which almost touches 157.00.
Editors’ Picks
EUR/USD edges lower toward 1.0700 post-US PCE
EUR/USD stays under modest bearish pressure but manages to hold above 1.0700 in the American session on Friday. The US Dollar (USD) gathers strength against its rivals after the stronger-than-forecast PCE inflation data, not allowing the pair to gain traction.
GBP/USD retreats to 1.2500 on renewed USD strength
GBP/USD lost its traction and turned negative on the day near 1.2500. Following the stronger-than-expected PCE inflation readings from the US, the USD stays resilient and makes it difficult for the pair to gather recovery momentum.
Gold struggles to hold above $2,350 following US inflation
Gold turned south and declined toward $2,340, erasing a large portion of its daily gains, as the USD benefited from PCE inflation data. The benchmark 10-year US yield, however, stays in negative territory and helps XAU/USD limit its losses.
Bitcoin Weekly Forecast: BTC’s next breakout could propel it to $80,000 Premium
Bitcoin’s recent price consolidation could be nearing its end as technical indicators and on-chain metrics suggest a potential upward breakout. However, this move would not be straightforward and could punish impatient investors.
Week ahead – Hawkish risk as Fed and NFP on tap, Eurozone data eyed too
Fed meets on Wednesday as US inflation stays elevated. Will Friday’s jobs report bring relief or more angst for the markets? Eurozone flash GDP and CPI numbers in focus for the Euro.
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