Trade management is all about how a trader manages his trading activity to maximize his potential profit and minimize the risk of losing profit. The following are suggested measures that a trader can consider during his trading activity, which will help him provide quick and practical decisions that are based on sound trading principles.
It is very important that as a trader, when you are experiencing succeeding losses during the trading activity, you manage these losses by placing a stop-loss order, because if you do not do this, chances are that your account may be wiped out from the succeeding losses. A stop-loss order is an order that closes your trading position when your losses on that trade have reached a low, loss amount at that period when you initiated the stop-loss order. It is important to put at 2-6 pips when you place a top-loss order, if you’re doing a long position, and a 2-6 pips with the addition of spread above the most recent high, if you’re doing a short position. The smallest amount by which a currency quote can change that is $0.0001 for US dollar related currency pairs is called a pip. A trader can run the risk of a series of losses during trading activity if there is no stop-loss order, that’s why this mechanism was introduced to purposely protect traders from losses due to the inherent volatility of Forex trade.
Trading can be unpredictable and needs quick action, for instance, there are situations during trading that after a series of small variations in prices, the trade begins to move in your favor, which is giving you the winning position, when suddenly the price reverted back to its old price before you can react to secure your profits, in which case, this is a classic example of a winning position that resulted into a loss. In order not to experience this kind of situation, when the price goes in your favor, place immediately your stop-loss order, before the price can revert back and result to a loss for you.
There are kinds of price movements in a Forex trade, they are the up movement or uptrend, the down movement or downtrend, and the range movement, where the price moves up or down within a specific range. The importance of learning the signs of these movements is to allow you to decide as to when to place a top-loss order when prices are going up in your favor. What to do in a downtrend situation and the price continues to drop: wait for the price to revert back or retrace itself, but if it continues to go down, adjust by putting a stop-loss order; in this way, the stop-loss mechanism enables you to accumulate profit while preventing loss.The Beginner’s Guide to Trading