Are You Over Managing Your Forex Trades Into Losers?
What many traders are very slow to realise is that the skill to making consistent profits is not in where the trades are entered, but after the entry has been made, how the trades are managed.
A quick glance in any forum will show that the bulk of traders are in the “trading systems” or “Holy Grail” sections, looking for the best entry system that will show them exactly how to enter the market.
These systems are designed to show and tell traders exactly when to enter the markets and hopefully put them on the right side of the market more often than not, but not how to manage their trades and the errors that often follow.
The Problem is Not the System or Entries
The problem is not the system. The problem is that if the trader does not understand how to correctly manage a trade, then they can use any system or method in the world and it doesn't matter how many times they are going to be on the correct side of the market, they will still lose money in the long-term.
Markets move up and down and this movement allows traders to make money and it also allows traders to lose money. This movement is why it is possible for two traders to enter at the exactly the same position, at the same entry point and for one trader to make a profit and for the other trader to walk away with a loss.
This is also how over time one trader will be able to manage their trades and make consistent profits and the other consistent losses.
In very basic terms; it is not the entry position that determines whether a trader makes a profit or not. The reason traders go through system after system after system is NOT because the system does not work.
Even though the trader blames the system and tell themselves that it’s not their fault and it is the systems or methods fault, it is really the trader’s inability to manage trades correctly that causes them to fail time after time.
This is the same reason why the trader who understands how to manage trades correctly and who holds the correct mindset can pick up the very same systems that the other trader has failed with and make money with them.
Traders will continue going through system after system, they will quit trading or they will finally work it out that unless they start concentrating on trade management their trading will not improve. Making the odd winning trade is not hard and even a monkey can do it, but only a skilled and educated trader can make consistent profits managing their trades consistently to a rule set.
Over Managing Your Trades
Over managing trades can be a real killer. Over managing are doing things such as;
– Moving your stops and targets too often
– Not waiting for the candles to close before adjusting stops or break even positions
– Entering trades and not letting price “move” with over management of trailing stops or to close targets
Traders often get into trades with the best of intentions, but the biggest problem is once they get into the trade they often don’t know what to do once they are in them.
This is where the real problem lies and when the over management becomes a real problem. This is when the trader starts to play with their stops and they start to shorten their profit targets. This can lead to a huge amount of frustration.
The trader may have seen some sort of rejection candle that scares them so the trader will cut their profit shorter than they normally would. They say to themselves “I would not normally do this, but just this once”. Then the next trade rolls around and “I would not normally do this…..” I am sure you see where I am going with this.
The problem with over management is that not only does is cripple the trading account, it messes with the traders mind. The trader knows full well every time they should not be doing what they are doing and yet they still do it.
Micro Managing Your Trades
Micro Managing are acts such as;
– Going down to smaller time frames to manage trades
– Checking your phone every 2 minutes to look at a trades
– Trailing your stop every time price moves a few pips higher or lower
– Leaving your computer on all night or setting alarms to wake up so you can check your trades
Out of today’s article this is the most dangerous section for traders and the one for you to take most note of. Micro management can quickly do damage to an account balance if not kept in check.
A lot of traders get caught up in trying to control every aspect of every trade they enter. They simple truth of the matter is that a trader will never become successful until they 100% accept the fact that; the Forex market is random and every outcome is uncertain.
It is this uncertainty that a lot of traders find extremely hard to embrace and until they do they will struggle to have success. A lot of traders try to overcome this uncertainty by micromanaging their trades through many ways. They will try either trailing stops super close or going down to really low time frames or even watching their computer all night so they don’t miss a thing.
Accepting Uncertainty is Crucial
What every trader needs to accept is that every outcome is uncertain. You cannot control it no matter how much you try and micro manage it. The more you try to micro manage your trades, the more you are hindering your chances for success.
Mobile phone trading is the new trading addiction that is beginning to hurt a lot of trader’s accounts. Traders sign up for mobile phone trading with a lot of excitement, but if this excitement is not kept in check it can quickly turn into an addiction.
Forex brokers are very clever and they realise the more they get their products in front of traders, the more traders are going to trade and hence the more money the brokers will make.
Trader’s start of just occasionally checking their markets on their mobiles, but this can quickly turn into an addiction with full trading only a few clicks a way at the palm of a trader’s hand.
The best way to use mobile phone trading is only as either a backup system or when out and about, but not as a number one trading system.
This way you can use the mobile trading to its full potential. If you are out and about and are in a trade, then use mobile phone trading to keep an eye on the open trade and possibly update stops and targets or if you are waiting for a trade to eventuate and are in a meeting then use mobile trading, but you don’t need to let your mobile become a part of your 24/7 trading routine or to take over your life. Be smart about how you trade.
Make Your Plan
The best way to overcome both over management and micro management is to set a pre-trade plan. This is both brilliant and really simple and will help fix a lot of all these problems as long as you can have the discipline to stick to the plan!
Once you have identified a trade, you work out your money management.
If you are not sure how to do that read here: Money Management That Actually Works. Once your money management is worked out you are going to identify your key profit target levels that you wish to take profit.
Once you have identified these levels, you are going to write them down either on your diary or note pad. You’re then going to write down exactly how you are going to manage your trade.
For example; When price gets to the level you have identified are you going to take full profit or are you going to move to break? Will you take half profit and move the other half to break even? Will you move all the trade to break even and try for an even bigger profit trade? Do you have a second profit target?
The pre-trade plan should have everything written down exactly how you are going to manage the trade. Once you are entered into the trade you should not guessing at all as to how you are going to manage the trade.
Using this pre-trade plan will take all the guessing out. It will take all the over management and all the micro management out. It will take all the over emotional mistakes that are made when trades are on and traders are gripped with fear or greed.
All of that is taken away because all the trader has to do is follow a very simple plan that was written when they were thinking very clearly because they were not in the trade when they made the plan and no money was on the line.
Trade management is so often the missing link in the chain for a trader realising their true trading potential, but is also not something a lot of traders want to devote a lot of time to.
I hope you have really enjoyed this article and would love to hear your comments in the comments section below.
Leave your comments and questions in section below;
How to arrange or manage the stop and target? Where can I read your lesson about that?
Johnathon Fox says
trade management, stops, targets etc are discussed within the courses and members area. Any other questions just let me know.
Thank you for this post, it is really helpful. I’m a newbie trader and I realize that the real battle happens after entering a trade. I have so many doubts on how to manage my trade and some of my trades were lost because of bad trade management. Will try and follow your advice and hope it improves my trading.
Colorbo Poster says
Totally agree with you. Managing trades is as important as finding trade setup. Knowing when to enter and placing stop is only half the battle. Managing the trades till it reach your profit target is where you earn money.
Joel Lacsi says
Thank you once again for a very informative post. So how should we come up with the targets for profit taking is it based on the next support/resistance level? if we establish a support/resistance level from the daily chart and went down the 1 hour chart to look for price action on that support/resistance, where would we get our next support/resistance? From the daily or hourly chart? Thanks again Jonathan.
Johnathon Fox says
have you read this: https://www.forexschoolonline.com//manage-forex-trades-using-key-price-action-time-frames/
Go through that and then if any questions just flick me an email.
William Mamudi says
Always brilliant article as usual, Johnathon! Making a trade plan ironically is the easy part. Sticking to it consistently is the hard part. 😀
thanks for lnform MR
I like to take half profit and move the other to breakeven – love this technique
As always simple yet logical and helpful. Thank you!
Nor Affendi Ahmad says