How To Let Your Winning Trades Run
Cut your losses short, let your winners run. You know the saying, but do you apply it in your trading? I can tell you now that most people do the exact opposite – They cut their winners short and hope losing trades will magically move in their favour.
This is one of the primary reasons why 70% – 90% of retail traders fail. You won’t fall into that group though, why? Because you came here to learn How To Let Your Winning Trades Run!
Don’t forget to learn about this process’s other aspect by reading How To Cut Your Losing Trades. It’s a damn good article if I do say so myself.
Winning frequently in the Forex market is no easy task. So when us traders are right, we need to extract as much money as possible out of our positions. Let’s discuss how to do just that.
1. Don't use take profit orders
I first came across this concept when listening to a podcast with famed trend trader Tom Basso. He said something along the lines of “why limit your potential profits when you don’t know how far the market will move?” A lightbulb went off in my head! I’ve been limiting my gains since I was a little baby trader.
Using a TP is literally limiting your gains. That’s how we are supposed to treat our losses. Think about it logically. When you set that order, you decide this is the maximum that you can win from this trade. That is the LIMIT.
Tom also mentioned that if you look at the wealthiest traders, you will see that they had a few ridiculously profitable trades in their careers. These trades put them on the map.
However, if they used one take profit to close their position, those trades would have been a small incline in their equity curve. I feel sad just thinking about the contrast in those results.
Should you stop using TP’s? You can find out by looking back at your past trades and analyzing if you could have squeezed more profit overall. If you left a lot of profit out there, then remove those take profits without hesitation.
2. Trail your stop loss
Although you should always look to extract the most out of the market, it is a balancing act. You should never allow the market to swing against your position and trend against you. That is not trading. That is hoping.
This gives the best of both worlds, the market still has a chance to run in our favour, but we don’t give it the opportunity to turn on us and demolish large profits into nothing.
You can implement a trailing stop by:
- Moving the stop as the market makes new swing highs/ lows.
- Using a pip trailing stop, which means your stop loss will move along with price, but will be certain amount of pips from the recent high/ low, e.g. you can set it to trail 30 pips away from the market price.
Trailing stop example using price action
(Source – TradingView)
I will preach the power of trailing stops every day, so I suggest you give them a shot. It will take time to integrate this with your strategy, but it is worth the effort.
3. Keep a set of management rules
Trading Forex, or any other market, without rules leaves you rudderless in an ocean of sharks ready to take your money. Yet many new traders believe that rules only matter when entering.
I have no clue why this is the case. Good trade management AFTER ENTRY is what separates the good from the great.
As you can probably tell, I strongly suggest that you have a trade exit plan, dictating the circumstances in which you should:
- Close your trades out manually.
- Move your stop losses.
- Decrease your risk.
All of these rules should be based on price action and not your emotions. That is why it is crucial to write these conditions down and keep them with you.
How does this help with letting your winning trades run though? It helps because objective criteria prevent you from closing your positions because of emotions and gives you the confidence to follow your system.
4. Don't look at the money
Countless trading errors can be fixed if you stop thinking about money while participating in the market. One of them being the difficulty in letting profits run.
This is all based on psychology. You are far more likely to impulsively close a trade when you stare at how much money you will have. However, if you focus on pips, trusting your system and letting the position run is a breeze.
In certain situations, it becomes even more challenging to leave that winning trade to do its thing – Imagine you have been in an extended drawdown, and you glance at how much $ profit you have on a certain position.
Your mind says if you just close the trade, you will recuperate some of your capital that you lost during this unfavourable period. Then chances are you will break your rules and exit.
This could also be true if you oversize on an opportunity, even though you should not be, because the extra risk means that you are now looking at a larger $ gain.
Moral of the story, stop thinking about the $, and you will end up with more $ in the long run.
5. Take partial profits
Maybe you just have to scratch the itch? Maybe psychologically, you need the assurance of a take profit so that you guarantee a certain gain if you are right? Maybe you want to close out for a profit as soon as the market looks like it’s turning on you? Is there a way to scratch the itch but still let your winners run?
Yes, you can implement an exit system that takes profits along the way. Basically, you will be closing out your trades in stages.
To do this, you can break up your positions into portions and close out each piece when a certain target is reached. And the rest can be left open, allowing greater profit potential.
For example, let’s say that your system usually catches a move that is a similar size to the last leg of a trend. You can set a TP for half of your position at that price, and the other half can be left to run while you trail your stop loss.
Taking partial profits
(Source – TradingView)
Maybe this technique is for you? It satisfies the psychological desire for a win and keeps us in the market to catch a large move. Try it out.
6. Don't listen to the noise
Your system is all that matters while trading. If you look long and hard enough, you will find plenty of reasons (and other traders) that will make you want to exit.
None of these outside factors are part of your methodology though, so they are irrelevant. Block out the noise, and leave your winners to grow.
7. Practice makes perfect
Logically, it is way easier to execute and follow a process if you have done it thousands of times. What makes it difficult to build positive habits in trading is the mental battle we all go through. If only there were a place we could practice with less psychological pressure?
I have good news. There are two places where we can do just that – On a demo account and a backtesting platform.
You can practice following your criteria and letting your profits run on both of these until it becomes a HABIT that you continue to execute on your live account. Easy as that.
If you would like to backtest, check out TradingView, which offers this capability and many other features.
Why is it important to let profits run?
- Large wins help a trader to build confidence in themselves and their system.
- It is critical to capitalize to the max when you are right because it is not easy to be consistently correct.
- One of the core ingredients to a positive expectancy is an excellent risk to reward ratio. To obtain a good R:R, the size of your wins must greatly outweigh your losses.
- In certain market conditions, your strategy will not perform well. Letting your profits run in favourable environments is essential for you to maintain a smooth equity curve.
When you begin to let your winners run, not all trades are going to be more profitable. Some of the time, exiting when the market shows small signs of a reversal or using a TP would equal more profit on that individual trade.
But allowing your winners to grow will equal more $ for you in the long run, and that is what we are all after.
New traders often search for a million different ways to enter into the market, and they forget to optimize the way they exit. Simple entry strategies can make money as long as they are met with good management of the trade.
So before you overcomplicate things, throw an approach away, or quit Forex trading altogether. Let those profits grow, and chances are you will come out with a positive expectancy.