Free Forex MQL Training

Trade Management also known as Money management (MM) techniques are those that help you increase your profit or decrease your loss per trade. With the help of these techniques you could maintain the win rate (i.e. the ratio of winning trades to losing trades) while you increase your pay rate (i.e. the average gain per winning trade to the average loss per losing trade). The following tools are six trade management tools that you may find useful.

Move to Breakeven

If the price moves in your favour (e.g. 30% of profit target) the system moves the Stop Loss near to the purchase price in profit zone. This locks the trade in profit. Therefore, the worst case scenario would be to exit the trade with a couple of pips in profit. For example if you buy USD/CHF at 1.2400 and the TP (Take Profit) is set to 1.2500 (i.e. 100 pips) while SL (Stop Loss) is set to 1.2320 (i.e. -70 pips) you might lose up to 70 pips if the market moves in the opposite direction of the trade. Now if the price moves in your favour for example to 1.2430 you could move SL to 1.2401 (i.e. open price +1 pip). As soon as you lock the profit if the market moves against the direction of the trade, you still gain +1 pip instead of losing 70 pips. You need to define the conditions that you move SL near the open price. You may use back-testing to find the best condition to take action. You also need to find the size of minimum profit. It is usually 1 pip but you could increase this value based on the market conditions and volatility of the pair you trade.

Trailing Stop

If the price moves in your trade’s favour to a certain level (e.g. 60% of the profit target) the stop loss jumps to BE plus 1 pip and then for every pip the price moves toward TP, the SL also moves one pip toward TP. If the price moves in the opposite direction, the SL does not move and remains where it was. Therefore, if the direction of the market reverses you still make some money. In the previous example if the price moves to 1.2461 the SL moves to breakeven (BE) + 1 pip (i.e. 1.2401 or rather one pip above the open price). If the price moves to 1.2467 the SL moves to BE + 7 pips (i.e. 1.2407). Now if the price moves in the opposite direction the SL stays where it is and if the price drops over 60 pips it hits the SL but instead of losing money you gain 7 pips.

Move to Mid-Take Profit (or Mid-TP)

Suppose the price advances 90% in your favour and suddenly reverses. In this case the trailing stop saves a few pips for you but that probably is not even enough to pay for the rollover swap interest. To address this problem in such cases the system moves the SL to somewhere around 50% of the TP. In the previous example if the price moves to 1.2485 the SL moves to 1.2455 so if the price drops you make 55 pips. If the “mid-TP” was not in place you would have only made 25 pips with the help of TS.

Compromise Take Profit (TP)

If the price moves in the opposite direction and there is a big chance that you’ll lose this trade you could lower the TP to somewhere near the open price. Thus if you get lucky, and the price moves back in your favour, the system closes the trade with a few pips in profit. This feature is one of my favourites because many of the trades that are supposed to end up in loss would make money just as a result of a short movement of the price in our favour. This feature is similar to “Move to Breakeven” but when the price moves against your trades. Remember that this feature compromises the Take Profit rather than moving the Stop Loss.

Trailing Profit (Negative Trailing Stop)

This feature enables a trailing profit in the opposite direction. It means that when the price moves in negative direction it moves the TP to the open price (breakeven point) first and then follows the price in the negative direction. This feature in some cases minimizes the loss. If you use this feature your trade could hit Take Profit but lose money. This could have a negative psychological effect on you, so make sure you really want this to happen.

Move Take Profit to Mid-SL

With the help of this feature if the price approaches the original stop loss the system moves the TP to the midway to SL. This means that if by chance the price slightly moves in your favour the trade may get closed with half the loss instead of full loss. Similarly to Trailing Profit this feature could result in a situation that your trade hits TP but yet loses money.

With all these trade management or rather money management tools in place you are - to some extent - guarded against negative market movements. These could help you have a better trading experience. Make sure to back-test and forward-test all these tools one by one before putting them in use. I have already developed a set of Expert Advisors that automate all or some of these tools for you. Click here for more information.

I will also publish more exit strategies in the future. Sign up to our mailing list to be notified about our articles, tutorials, videos, and free Expert Adisors, and custom Indicators. The registration also gives you access to our members area and free MQL training.

Relevant Article: Parabolic SAR Trailing Stop

Risk Warning!

Discuss this article!