The path from entry to profit target is rarely a straight line. Especially when market structure gets in the way.
In today’s example we have an area of resistance, right in the way of our trade. Given the potential for some reaction off this area of resistance, we have two options. We could hold a much wider stop and accept the potential for trade failure back at breakeven. Or we could accept a need to scale in and out in accordance with our assessment of short-term bias.
There’s no right or wrong. It’s rather just a matter of choosing the style that best matches “who you are as a trader!”
For me, the second option is clearly my preference.
The key, for those of you interested in actively managing trades like this, is to maintain a constant reassessment of probability throughout the life of the trade.
Trade management requires a constant reassessment of probability throughout the life of the trade.
Oh… and of potential payout… but we’ll look at that another time!  🙂
If a trade has “clear space” all the way from entry to the potential target area, then trade management is usually quite easy.
But that’s not always the case, as we see in this example, where there the prior day’s high forms a significant potential barrier to further movement, right in the way of our trade.
In these cases it can be wise to consider scaling out some partial profits, or even going completely flat, whenever you assess a greater probability of movement against your position. You can always look to get back in if price sets up for another push towards the level!
Happy trading,
Lance Beggs