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One Way to Manage Range Trades

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In previous trade management articles we have discussed primarily systematic trade management vehicles, applied to daily charts. We also saw one example of short-term trade management from one of our own traders, Sachin Vaze. Today we’re going down the discretionary route again, with another of our traders: Sam Elhelou.

What follows are Sam’s best practices for managing trades within ranges – which is his bread & butter. It is quite different than trade management on trend-following trades because Sam has specialized in trading “tight turns” within ranges on multiple timeframes.

How to Exit Your Trades

In his own words:

When I started studying trade management for my style of trading, initially I tried to take full profits at 1R. However, my studies showed that I left profits on the table most of the time. Then I tried taking partial profits at 1R and leave the rest to run. That works sometimes, however it also requires more movement on the remaining lots to make up the initial risk.

At that point I tried going for 2R, and then trailing my stop to Break Even. However, that suited the bigger trends but they occur less frequently. Since I’m initializing my trades within a range, I had to come to grips with the fact that price can come back and chop around in the range.

Sometimes position is stopped at break even alot in choppy ranges, can re enter if setup still valid. Timing the market about to start is an art. Through my studying, I eventually found 4 different types of trades which are based on the principle of immediate gratification. Based on the type, I have a different expectation, always keeping in mind that playing the tight turns of support and resistance requires monitoring and managing the trade until 1R is achieved, and  then it’s a question of when and how to move the stop loss to break even.

Here are the 4 categories of trades I noticed:

  • After entry, price never goes in your favour and quickly moves against you. These ones should be avoided as they can cause damage to your account. When I see sudden moves against my position, right off the bat, I cut the trade (if possible) but these are the trades that usually just stop you out.

  • After entry, price never goes in your favour and remains lethargic for a certain amount of time. Usually these trades slowly move toward your stop. When trades are moving slowly after entry, I have learned to give it some time, but then cut them before they hit my stop.

  • After entry, price moves slowly in your favour. These are equally challenging trades because they lack the momentum that gives you confidence to hold the trade. If this kind of trade reaches 1R, I will protect my profits immediately.

  • Finally, there is the trade that never goes back to your entry point. If moves swiftly away. Once identified, this needs to be held and committed to. The best trades act like this. Do not be tempted to take profits when you see the initial burst of momentum. Have patience and let this trade move towards an aggressive target.

Example of Excellent Performance: GBPJPY

Here is a trade I took in December 2018 on GBPJPY. 
Momentum was pointing down, and into December 5th I had strong convinction that sellers would still be waiting at the most recent swing high point from December 4th. I sold when price approached the key zone.
Initially this trade stumbled around, but the price action was, in my opinion, good enough to hold the trade. The typical herd behaviour was evident with the initial hourly Doji and the smaller ranges afterwards. The market has to make a choice: either shoot up or shoot down from here, after it slowed down.
The market decided to show momentum in my favour. This is the best kind of trade and I made up my mind to hold it for a return back to the consolidation low.
The sellers that pushed the market down on the 5th were being seen again into the day’s close. I held the trade overnight.
The next morning the market pushed all the way to my final target, offering me a multiple-R winner.

Over to You

Above and beyond Sam’s technique, I would like to draw your attention to the work Sam did to reach his comfort zone:

he tested, recorded the results, adjusted, recorded the results, adjusted again, recorded the results.

This is what is required, in order to be confident with your trading model: you need to work with it in a disciplined and structured manner. Even in the Free Advanced Course for Smart Traders, we suggest thinking in blocks of 30 trades. After 30 trades, taken with the same “recipe” and managed in the same way, you have objective data to work with.

But if you keep changing the way you identify, execute and manage your trades, the data will not make sense and any further changes are not based on solid ground.

The other key takeaway is Sam’s view on “immediate gratification”. It’s quite true that the best trades don’t usually stick around for long. They push in your favour immediately. They show promise from the onset.

Finally, if you want to hear more about Sam’s views on trading, you can find him in this webinar.

About the Author

Justin is a Forex trader and Coach. He is co-owner of 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.

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