Stop Losses and Take your Profits

Stop your Losses and Take your Profits

It is extremely frustrating to see your trade go against you and eat away your money. All it takes is one bad trade to wipe out a week or even months worth of earnings if you did not protect your capital with stop losses. Likewise, it is painful to watch your huge amount of paper profit dwindle away because you did not have an exit plan in place to take your profit at the right time. Not to worry, you are not alone if you have experienced either of these circumstances. It is essential that if you want to be successful at gold trading, you recognize the importance of protective stops and take profits as an essential money management tool.
Here are some simple guidelines:


Don’t blow your account for one trade

Many experienced traders will limit their risk on any given trade to an amount of between 2-3% of their account value. It is amazing how often new traders will risk a huge portion of their account on a single trade. For example if you were to risk 50% of your account balance on one single trade you stand an extremely high risk of slicing your account in half. Now for you to be able to get that money back you would need to make a 100% return on your remaining funds. Ouch !!!!


Using chart support stops

Many novice traders will place a stop at the same level of a previous support level on a chart only to see the price hit that support level and then pass through it to a slightly lower level and take out their stop. After cursing their loss they then witness the price of gold bouncing from that price level to new highs and miss out on the big move altogether. When you place your stops, make sure that you are adequately covered to avoid getting wiped out too soon before the next big run up. You do this by not overextending yourself on any trade and maintaining a disciplined money management approach. Just because you have massive leverage, doesn’t mean you should use it all and give yourself too narrow of a stop loss.


Have a plan to take your profit

You should always have a take profit that is planned before you even decide to enter a trade. You should never enter a trade without an exit plan. Once again it is all about properly managing your money and following your trading plan.


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