What are some advanced profit booking techniques that can make you better at trading?
If you have watched other videos on the Trading Rush Channel, you know I recommend using a
fixed stoploss and profit targets for beginner traders.
But at some point, once you gain enough experience in trading, you should probably switch to
different trade management techniques that have higher probability of making more money.
In this video we are going to see some of those trading techniques, so you can make
more money as well.
Also, subscribe and ring that notification bell, because on the Trading Rush channel,
we test many different strategies 100 times to find their win rates, and you don't want
to use a strategy that doesn't even work.
If you have watched the small account challenge series, and the liive trading videos on this
channel, you know I use very different profit booking methods in those series.
In the small account challenge series, where we tried to double the Trading account, I
mostly used the fixed profit target.
But in the liive trading videos, I had no profit target, instead, I was trailing the
stoploss candle by candle.
That's because sometimes it is better to use a profit booking technique based on the market
movement.
For example, lets say you have found a stock or a forex pair that is moving strongly in
one direction because of a strong catalyst.
When the price gave a pullback in this strong up trend, you found a trading opportunity
and take a trade according to your entry strategy.
Normally, in a fixed stoploss and profit setup, you will book a limited profit.
But in this example, since we know that the price has potential to move strongly in the
upward direction, we can simply avoid setting a profit target, and move the stoploss below
the candle that is making the new high.
This aggressive stoploss trailing technique was used in the liive trading videos.
This strategy is most effective when the price is less noisy.
For example, lets say you enter at this candle according to your trading strategy.
As you can see, there is less noise on this chart and the price movement is easier to
read.
Since we know that the price movement is good and has a potential to go higher, we can set
the stoploss just below the entry candle if it is big enough, and trail the stoploss below
the candle that is making the new high.
Here, after taking the entry, you can see that price went sideways.
Since none of the candles made a new high, we cannot trail the stoploss.
When the candle makes a new high, we can modify the stoploss, and set it just below the candle
that made the new high.
Now, if the price reverses from this point, you are only going to lose a small amount
of money compared to your original stoploss.
When the next candle made a new high, your stoploss is in profit.
From now on, the trade is not going to make a loss.
These kinds of trades have potential to make a big profit.
In this example, the stoploss was hit when the candle broke the low of the previous candle.
The reward to risk ratio on this trade was 4.5 to 1.
In other words, you made a profit that is 4.5 times more than your initial risk.
I have used the same strategy in the liive trading videos, and have gotten multiple green
days in a row because the potential loss per trade was reduced as the trade went higher
in the entry direction.
But what if the price movement is noisy?
How can you book a big profit?
Well, if you think that the price has potential to move in one direction, you can simply use
the ATR indicator to set the stoploss.
I have already made a detailed video about it.
Check it out if you want.
If we apply the ATR stoploss on our previous example, you can see that we would have exited
the trade at a much higher point.
But this doesn't mean you would have gotten a better reward to risk ratio than the previous
trade.
That's because the initial stoploss in this example was way bigger than the last stoploss.
When we trailed the stoploss candle by candle, we got a 4.5 to 1 reward to risk ratio.
With the ATR stoploss however, we only got 4.2 to 1 reward risk ratio.
This doesn't mean that one is better than the other.
One is made for less noisy price movements, and other one works by taking price volatility
into consideration.
But what if you don't want to continuously stare at the chart.
Well, you can simply take partial profit as the trade moves higher.
Lets look at an example.
Here, lets say the price has potential to move higher upto the clearly visible resistance
level.
But between the entry and the strong resistance level, there is another resistance level.
We don't know if the price is going to reverse from this weak resistance level or not.
So instead of guessing, you book partial profit, and move your stoploss to breakeven.
In this example, you exit 25 percent of your trade when the price reaches 1 to 1 reward
risk ratio, and move the stoploss to breakeven.
This way, even if the trade goes in the opposite direction after touching the weak resistance,
you will not lose money, because you have already booked a small profit and your stoploss
is at the breakeven point.
But, if your trade reaches your next profit target, you will book a big profit, just like
we did in the previous 2 examples.
Instead of booking 25 percent partial profit, some traders also like to book 50 percent
or 75 percent profit when the trade reaches 1 to 1 reward risk ratio.
The choice depends on the probability of price making a big move in your favor.
If you think price has a higher chance of reaching higher reward risk ratios because
of a strong catalyst, it is better to only book 25 percent at the first profit target
and let the rest ride.
If you think there is a strong resistance that can reverse the price in between, it
is probably a good idea to take more than 25 percent off at the first profit target.
So here are some key takeaways you should note.
Number 1.
When the price is trending and if the price move is cleaner, trailing the stoploss below
the candle that is making the new high can be more profitable.
Number 2.
If the price action is noisy but the price is trending, you can use the ATR stoploss
to trail the stoploss.
Again, I have already made a video about it, check it out to learn more.
Number 3.
If you have doubt that price could reverse before reaching your profit target, you can
book a partial profit when the trade reaches 1 to 1 reward risk ratio, and move your stoploss
to breakeven.
This way you will not lose money, and still have a chance to make big profit.
Now, instead of taking partial profits at the 1 to 1 reward risk ratio, some traders
will only move the stoploss to breakeven.
Moving the stoploss to breakeven at 1 to 1 reward risk ratio only, is not a strict rule.
You can move the stoploss to breakeven anytime you think there is chance the price will reverse
before reaching your stoploss.
Number 4.
If you didn't understood anything what I just said, and are even more confused than before,
just use the fixed stoploss and profit targets to get consistent profit.
As we have seen in the strategies tested 100 times series, fixed stoploss and profit targets
also make a big and consistent profits in the long run.
That's all.
Now you know more about booking bigger profits.
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