Before getting to the development of a system we need to understand what is the main structure of trading. This structure is basic framework of how trading should work ideally.
One has to keep in mind that most important part of trading is exiting or closing a trade.
Because EXITS are what makes money, nothing else.
While most budding traders focuses on entries and setups but they hardly pay attention to when to exit or their profit targets.
You would often see your winning position turn to negative because you did not close the trade before and this is also the worst feeling while trading when all your profits are gone and you close in red by the end of the day. It has happened with me quite often and that is when I decided to put a framework for EXITS.
SO, when to exit a trade?
It depends on the strategy that you have deployed but for reference I can guide you through it.
- At 1R (that is your profits = the risk you have taken) book 50% of the profits and trail the rest
- At 1R book 15% of the profits, so that your cost of trading is recovered and shift stop-loss to entry.
- I personally book 10% at 1.5R and my Stop loss is then at Entry.
- After that, I keep the trade open till end of the day or till my new Stop-Loss is hit because patience is what makes big money. One or two good trades a month can make up for everything and that is often how you would get the big winners.
Make sure you focus on your exits, because there is no worse feeling than seeing a good profit turn into a loss.