While letting profits run can lead to bigger gains, you’ll need to adapt your strategy to current market conditions. Don’t blindly hold positions – instead, monitor price action, support/resistance zones, and momentum indicators to make informed decisions. Move your stop-loss to break-even once you’ve reached a 1:1 risk-reward ratio, and consider trailing stops behind recent support levels. Understanding when to hold versus take profits will transform your trading results.
Quick Overview
- Market conditions dictate profit-taking decisions, requiring traders to adapt rather than blindly following a “let profits run” approach.
- Moving stop-losses to break-even after achieving 1:1 risk-reward helps protect gains while allowing for potential further upside.
- Support and resistance zones serve as critical decision points for evaluating whether to take profits or let trades continue.
- Ranging markets typically require earlier profit-taking, while trending markets may allow for extended profit runs with trailing stops.
- Monitoring price action for weakening momentum or consolidation patterns helps determine optimal times to exit profitable trades.
Common Misconceptions About Letting Profits Run
Why do so many traders cling to the idea that they should always let their profits run? It’s rooted in trader psychology – the fear of missing out on bigger gains.
You’ve probably heard success stories of traders who held positions for massive profits, but these stories don’t tell the whole truth.
The reality is that blindly letting profits run can be dangerous. You need to consider market conditions, especially in ranging markets where prices bounce between zones.
What worked in a trending market won’t necessarily work in consolidation. Smart traders know when to take profits and when to let them ride.
The Truth About Letting Profits Run
The problem with simply saying “let your profits run” is that it never mentions when to get out. It never mentions that there are times you should not let your profits run.
This chart is in consolidation and there are trades indicated at each of the squares that would have your trade in profit. Letting profits run in two of these trades could have given you a scratch trade when you were full in profit.
And that’s just with this outcome. This is hindsight.
It is quite possible that the first short Forex trade not only returned to break even but could have just as easily busted to the upside. This would have been disastrous for any trader that could have lead to revenge trading.
In the last short trade, even though there is a price action trading clue that the downside break was coming, that is just a probability. It could have turned around on you.
Could we make a trading rule out of this situation?
Profits Run Trading Rule In A Range: Don’t. Take your profits at the opposing zone and position for a breakout trade if one occurs.
In other words, ensure you understand what condition you are trading in the market. In this example, we were trading in a range where letting your profits run can be a disaster.
Market Context and Trading Environment
Successful traders understand that market context is everything when making trading decisions. Your trading psychology and market sentiment must adapt to the current environment, whether it’s trending or ranging.
When you’re considering letting profits run, you need to evaluate the bigger picture.
- Check higher timeframes for potential resistance zones that could halt your trade.
- Monitor price action for signs of weakening momentum or consolidation.
- Assess whether current market conditions support holding positions longer.
Don’t let a singular focus on profits blind you to market realities. Being aware of the complete trading environment helps you make smarter decisions about when to hold and when to take profits.
Higher Time Frame Considerations For Forex Traders
I know many of you love to day trade (even if the stats say you will eventually blow your account) and often times that means sticking to one chart.
But what happens if you are running a nice long day trade in a currency and are many pips in profit…but you have tunnel vision.
WHAM!
This big chart is a one hour time frame Forex chart. Let’s break this down:
- Strong momentum push resulting in consolidation
- Beautiful “fakey” setup which gets you into the market before the break
Price rockets up right into consolidation again. Break to new highs which many traders would take part in.
Right into consolidation again and if you are holding longs, this constant breaking to new highs looks great!
You are letting these profits run nicely to the upside.
The problem is you’ve not taken into account what the inset box is showing.
The inset is a weekly chart and the grey arrow points to the candle where the huge down move on the big chart originates from.
You were holding longs right into a former resistance zone but you were doing what the “sayings” tell you to do. While this is the retail market, it’s likely you didn’t get hit with slippage on this trade if you had your stop right under the last price compression.
But if you were letting profits run, you should have had a further stop since consolidations can be broken yet not invalidate the trade.
If you had your stop loss below the second last consolidation, that one hour candle wiped out over 100 pips of gain.
Day trading rule: Ensure you look to higher time frames for roadblocks such as a former zones of support and resistance. If approaching these zones, tighten stops or watch price action for weakness and take your profits.
This is the problem we this kind of trading wisdom: There is no context.
Stop-Loss Management During Extended Trades
Managing your stop-loss becomes a new challenge once you’ve let a trade run into significant profit.
As trade duration extends, you’ll need to adapt your stop loss techniques to protect your gains while giving the market room to breathe. The key is finding the right balance between securing profits and allowing for natural price fluctuations.
- Move your stop-loss to break-even once you’re up 1:1 on risk-reward.
- Trail your stop behind the most recent support/resistance level as price advances.
- Tighten your stop gradually as the trade matures, using the previous candle’s low/high as a guide.
The Role of Support and Resistance Zones
When you’re analyzing whether to let profits run, support and resistance zones can be your market roadmap. These critical areas show you where prices might stall or reverse, making them essential for your profit-taking decisions.
Understanding support dynamics helps you identify where buyers typically step in, while resistance impact shows where sellers often take control.
You’ll want to tighten your stops and consider taking profits as price approaches these zones, especially if you’re seeing signs of weakness.
Don’t ignore these levels just because your trade is profitable – they’re often where the biggest reversals happen.
Your Questions Answered
How Do You Identify the Optimal Moment to Start Scaling Out Positions?
You’ll know it’s time to scale out when you’ve hit your first profit targets and market conditions start showing signs of potential reversal.
Start by reducing your position sizing at key resistance or support levels.
Don’t exit all at once – instead, take partial profits at predetermined levels while keeping some of your position open.
Watch for momentum shifts and higher timeframe barriers to guide your scaling decisions.
What Indicators Best Confirm Whether a Market Is Truly Range-Bound?
You’ll know a market is range-bound when price consistently bounces between clear support and resistance levels.
Watch for reduced market volatility and flatter moving averages.
Use the Average True Range (ATR) indicator to confirm decreasing volatility, and combine this with Bollinger Bands – when they narrow, it often signals a ranging market.
RSI oscillating between overbought and oversold levels can also confirm range-bound conditions.
When Should Traders Switch From Swing Trading to Scalping Strategies?
You should switch from swing trading to scalping strategies when market conditions show clear signs of range-bound activity.
If you’re noticing that prices aren’t making sustained moves and instead bounce between support and resistance levels, it’s time to adapt.
Look for tight consolidation patterns and decreased volatility as key signals.
How Do Correlating Currency Pairs Affect Profit-Running Decisions?
When you’re running profits, you’ll need to watch how correlated pairs move together.
Your correlation analysis should focus on pairs that typically move in sync or opposite directions. If you’re holding a long EUR/USD position and GBP/USD starts showing weakness, it’s often a signal to tighten stops or take profits.
Smart pair strategies involve monitoring these relationships to protect your gains and spot early warning signs.
What Percentage of Winning Trades Typically Reverse Before Reaching Target Levels?
While trade reversal rates vary across markets, you’ll typically find that 40-60% of winning trades experience some degree of reversal before reaching their targets.
That’s why you shouldn’t set profit targets too far from your entry point. Instead, consider making profit target adjustments based on market conditions and price action.
Pay attention to key resistance levels and be ready to lock in gains when momentum shows signs of weakening.
Conclusion
You’ll find better success in forex trading by balancing the “let profits run” advice with market reality. Don’t just follow this rule blindly – adapt your approach based on market conditions, support and resistance levels, and clear stop-loss strategies. Remember that trending and ranging markets need different tactics. Stay flexible, protect your profits, and make decisions based on what the market’s telling you.