Once we enter into the trade, there are only 4 possibilities. Either that trade will turn into a big profit or small profit or small loss or big loss. We don’t know the future so it is not possible for us to know in advance what will ultimately happen. But it is always possible for us to avoid this “big loss.” If we are able to do that then the trading will become profitable for us because small profit will take care of small loss and we will be left with big profits.
We always work in right direction and follow the above trade plan to avoid “big loss.” We will never overtrade and our SLs are very small compared to profit potential. So ultimately we are able to avoid this “big loss.” Now we should focus on frequently getting the “big profit.” Let me discuss how,
After entering into the trade, the trade will typically behave in following 3 ways.
1) After the entry, it will hardly move in our favor and it may soon reverse. In this case, most likely that trade will end up hitting our small SL.
Solution: We cannot do anything here. We will have to accept the small loss. There may be different reasons for that happening. Maybe the volatility becomes too high, maybe just a false trigger, or maybe simply no follow-through. These things are not in our control, so again we cannot do anything here to improve on that.
2) After the entry, it may so happen that it starts to move in our favor but cannot reach close to the target. Lets say it moves half way to the target or a reasonable good profit but not beyond that. So what to do in this case so that we can protect ourselves better.
Solution: If that happens, the best way we can mange this trade is that we trail our SL. We can trail our SL to half of our original SL. If Rs. 2 was the initial SL, we can now trail it to Rs. 1. This way it will ensure very less damage if the trade suddenly reverses and forces us to exit. So by managing the trade this way, again it will cause us very little loss. If it gets very close to target and quickly reverses without allowing us to book out close to target, we can also trail SL to just around our entry point and exit out of it as a scratch.
3) After the entry, it is possible that it quickly moves in our favor and reaches very close to target or bang on the target. In that case, we can book out completely at the best available price. Our objective of trading is achieved by making a big profit here.
Also to manage the trade better, it is essential that we never enter into the trade far away from recommended price. If it does not allow to enter around the price level, we will just let it go. We will never worry about it and focus on next trade setup. If somehow we manage to enter into the trade slightly away from the recommended price level, we will always make sure we adjust our SL and target price accordingly. E.g. if enter long at 502.30 instead of 502.10, adjust this 20 paisa into the SL and target price, so if prices reverse we will exit 20 paisa early and if it hits target, 20 paisa late.