The rush for quick profits and not letting your profits run could be damaging your long term trading success.
While there is a place for short term trading activities, many of the traders we look up to such as Bruce Kovner let their profits run until the tide changes.
Using a simple technical tool like the trend line can actually keep you in the bigger moves to really rack up your trading account.
Let Profits Run With A Simple Trend Line?
One simple to use system to keep a trade alive so that your trading profits can run is based on a simple trend line line.
Let me show you how a trend line can help you let your trading profits run with a few charts.
First lets assume that you are using the trend line trading strategy for entering a long trade as shown on the chart below:
As you can see, as soon as price breaks the rising trend line,the trend was now in a downtrend. Allowing your trade profits to run using a simple technical analysis tool keeps you in a large chunk of this long trade.
On this second chart below, assume that a trade was taken when a breakout of a support level occurred. Staying with the trend line could have given you 570 pips profit.
As you can see, after the trade was exited, a short while later the market changed to an uptrend after a brief consolidation
The only way you are going to really appreciate this technique is by opening up your charts and draw trend lines and observe how price has reacted to them.
This post here: how to draw trendlines will teach you about drawing trend lines the right way.
Advantages of Letting Profits Run
You can see on the charts there are several advantages to letting your profits run and not using price targets like day traders do:
- You can increase your risk : reward ratio immensely
- It requires very little time to adjust your protective stops
- One trade can make your entire year in profits
Why Many Traders Have Difficulty Letting Profits Run
Like many things, the saying “cut your losers and let your profits run” is easier said then done.
I’ve placed trades where I figured that the market would move strongly in a trend but soon as as I has a reasonable amount of profit, I exited too quickly. I didn’t stick to the original plan on where I thought the market would go.
A few weeks later, I check the charts and realize that I exited too early, If I had not exited too early, I could have made a 1000 pips profit instead of a 100 pips. I used to feel like beating myself up!
So what causes many traders not letting their trading profits run then? Well, from my own experience,
- It’s hard to resist the urge to turn paper profits into actual money
- Most traders have no clue about market structure or price action to see when the trend is turning
- Giving back any of the profits when price retraces panics traders into hitting the close button
Here’s the thing….
Letting your profits run with very minimal hand holding can actually keep you away from the markets. One fast way to short-circuit the fear/greed issue in trading is to not spend too much time starting at charts.
When you have your way of staying in a trade such as using a trend line, you no longer have to worry about coming just short of your profit target….because there isn’t one.
Simply position size appropriately keeping in mind your total account risk, get into the trade through your entry setup, and simply manage the stop.
Big Drawback – Or Is It?
When was the last time you picked the exact top or bottom? Maybe once or twice and it was usually luck.
When you are letting profits run, you will suffer through a retrace in your profit and loss column and for many traders, this is a killer.
The fear of giving back too much prompts them to exit their trade. When you use a trend line, you know exactly how much you will give back if the line is broken. You must have the ability to do what your trade plan says to do: let profits run.
If you exit prematurely, you run the risk of missing out on another leg up or down in your favor. This can cause a host of other trading issues such as revenge trading.
Let’s be real: It will be tough on your psychologically. It’s hard. But if you are interested in making Alpha returns, this is one technique you may want to master.
What Forex Trading Strategies Can You Use To Apply This Technique?
The answer: any trend trading system will do. It is not dependant on the trading strategy you choose to use.
You see, this is about letting your profits run in a trend. So your forex trading system can be:
- a trendline trading strategy
- a trendline breakout strategy
- the floor traders method
- or can be the heiken ashi trading strategy
- or it can be the support and resistance forex trading strategy
- or it can be any moving average cross over forex trading system
As long as it is a trend trading strategy, you can use trend lines as a means to tell you when to exit your trade.
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