What do you do if trade goes against you

Here is a scenario.

You entered in a trade.
you have set a stop loss
you have set a target

Now you see trade started going against you …What do you do in this situation ?

I can see two choices here though…

(a) close the trade before hitting stop loss and save some bucks .

(b) wait until the stop loss is hit because that will invalidate the trade.

Which choice is good in the long run ?

Please share your experience.

Thanks

Hopefully you have a system which indicates which way to proceed.

The reason for the stop loss position is in accord with this plan &
therefore the trade should be allowed to run.

You do this:

There’s no right answer as it depends on the situation, the current broad risk environment, what catalysts are coming up, your time frame, etc. This should all be considered before you enter a trade.

And you really won’t know until you get experience with your chose trading framework, and the adjustment processes you develop through your experiences. There’s no black and white answer in trading because there is no certainty in trading…learn to think in probabilities my friend and build your systems around that idea. :slight_smile:

If you are closing a trade before hitting your stop, you are changing plans during the trade. NEVER DO THIS. You need to put your stop where you plan to keep it and only move it in the direction of your trade according to a pre-planned scheme. If you can’t stomach taking the loss of your initial stop you are not managing risk appropriately. I have had many times were a trade came within a single pip of stopping me out at a loss only to turn and go my direction for a profit. “Saving money” by closing the trade at a small loss without letting it run its course would have been losing money. You need a strategy with an edge that you can trust and you need to stick to it.

If you have some plan going into the trade to close out the trade under the circumstances of some specified price action, then that is fine. That is planning. But if you are just looking at the price move against you and deciding on a gut feeling that you should bail out you are going to lose money.

yup…I meant that…I entered in a trade after I get signal from my system and looking at a bullish engulfing …after 2 days I found sellers taking control …a bearish candles started forming …lacking bullish momentum…should I change my plan and close the trade ? …OR should I stick to my plan …and still wait for the trade to hit my stop loss.

This is the area I am trying to improve.

The SL is there to minimize loss, that said, each trader co opts a different strategy on whether to bail out or stick with the current one until SL is hit. As others have suggested, unless you are damn sure about a set up, and see no point in waiting, wait till SL is hit…

You sux it up bro. You have set your SL at a level for a reason and you stick to your trading plan. If the trade goes bad you analysis why after the fact not before. Guarantee that as soon as you close a trade out manually it will turn back in your favor.

+1 on that. You should have all decisions made before entering a trade and once you are in the trade you should not allow emotions to make adjustments. It may work here and there, but in long-term it will work against you and as a trader you should be focused on the long-term. That’s why having a system which you trust and works for you vital if you want to succeed over an extended period of time.


Stay with your strategy. Let the trade run

OK so then you plan to get out when a certain pattern is made. That is fine, that is not changing your plan. You just need to be sure this scheme has an edge. If it does, follow it with confidence. I personally use a very simple scheme that does not include price pattern formations.

I take choice B. I have seen many a trade almost stop out then take full TP. Remember, choice B states that the trade will become invalidated. However choice A the trade has not been invalidated. That is the crux of the entire operation. Closing early is a mistake because your trade is still by whatever rules you determined before hand, still viable. If it wasn’t thats were your stop would have been in the first place.

Non of the choices you mentioned are good. If you have a trading strategy and you enter your trade and the stop loss according your strategy than you should leave it alone until it hit the stop loss. If that’s the case in a long term than you should adjust your trading strategy.

Before you open a position, you need to determine where you are likely to get out.
That means exiting at a profit, and exiting at a loss.

Typically, when I find my entry zone, the very next thing I do will be to determine where a stop order would need to be placed. From there, I figure out where profits would need to be taken. If the trade isn’t at least 1:1- I consider passing, or trading with incredibly decreased position sizes.