Multi-lot strategy for Today
March 6, 2006 by Trader Rich
I have exited only 1-lot of a 3-lot position for the first time. Last week I said that I had a bad habit of closing out a position when it went a little bit in my favor and that developing a multi-lot exit strategy may help.
I entered a Long position in the USD/CAD at 1.1360 (3 lots):
My targets were:
T1 - 1.1395
T2 - 1.1425
T3 - 1.1460
My T1 was hit for a 35 pip profit. I heard that it would be best to move your stop up to the entry level which I did at 1.1360. So the worst I can do at this point is make a profit of 35 pips. The best I can do is a profit of 200 pips.
I already feel like this strategy will be good for me. For one, I already have a guaranteed profit. Two, I have the potential to profit 165 more pips without any risk of losing anything except unrealized gains. I really think this will prevent me from micro-managing my positions and
impulse trading.
Popularity: 2%
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Can also use trailing SL
Trailing stop loss on both positions?
Sure. A trailing stop tracks behind the price x pips as it moves in your direction. You can set it to however many pips you want, 10, 20, 40, 50, etc. Also look at Parabolic trailing stop indicator. Of course all indicators are just that, indicators, based on past/present price, likely (but no guarantee) moving forward.
Good call on USD/CAD, Rich. A trailing stop simply locks in profits.
My second lot hit target 2 and closed. I put a 10 pip trailing stop on my last lot and it stopped out 10 pips below. Then the USD/CAD punched 40 pips higher. Maybe next time I should try a 20 pip trailing stop.
The general rule being that the closer one gets to target, the tighter the stop. Starting out, placing a trailing stop loss far enough from price to allow trade to develop legs. 40 or 50 or more pips is common, as is 30. Some recommend that you always stay stay 75 pips or so out. I don’t, I bring the stop in at some point. Depends on your pain threshold. It’s interesting to study the parabolic indicator, how it tracks trend, where it is in relation to price. Of course it will vary depending on what chart you are watching, hrly, 15 min, etc.