Snatching profits and running losses
How to add discipline and take control of your trading
Planning your trading in advance is an easy step to take when it comes to improving your trading discipline.
You should always create a trading plan before you start trading. A trading plan is a comprehensive outline of your trading goals, strategies and motivations, coupled with risk management and analysis of your past trades. You can find out all about trading plans in our ‘planning and risk management’ course.
In this lesson, we’ll take a look at a few different ways you can add discipline to your trading. Firstly, putting in measures to avoid the temptation to snatch profits and run losses, and secondly, using the tools on offer in the platform to inform your decisions.
Defining when you’re going to exit every trade
When you enter a trade, do you think about when you’re going to exit it? If you want to stop yourself running losses and snatching small gains, you should think about your exit points on both the upside and the downside of a trade before you place it.
Using stops and limits to define your exit points is the easiest way to control how much you’re winning and losing, without letting emotions get in the way of decision-making.
Stops will close positions automatically if the market moves against you, removing the temptation to keep losing positions open, while you can use limit orders to close positions when they hit a pre-defined profit target. There are a number of ways you can use them to improve your profit-to-loss ratio and return rate.
Say you have a low profit-to-loss ratio and want to start off by improving it to around 1:1. To do this you can set a limit and a stop order the same number of points away from the opening price on each trade you place.
This will mean that compared to your previous trades, your average losses should become smaller – and your average profits, larger. So, if you were to win and lose an equal number of trades, your win percentage would be 50% but your profit-to-loss ratio would increase to 1:1. This means that you’d be breaking even.
Another approach might be to set your limit twice as far away as any stops. If you were to win and lose an equal amount of trades, as we looked at in the previous example, you should end up with a profit to loss ratio closer to 2:1. In this scenario, you would stand to lose half as much as you stand to gain.
You can set your stops and limits as you place your trade in the deal ticket, or add them to an already open position in the positions tab:
For a complete guide on setting and using stops and limits, take a look at our course on them.
To increase your profit-to-loss ratio, you should develop your own strategy which suits your risk appetite. Take a look at our courses on ‘understanding risk and reward’ and ‘trade planning and risk management’ for more information on determining your risk threshold and managing your risk.
Improve your planning with platform tools
Staying on top of news and events that might cause market movement, and thinking about how you want to trade on these movements – where your entrance and exit points will be – will help you remove emotional influence from your trading decisions. You can take advantage of a variety of tools in the platform to help you prepare for market movement.
1. News and analysis
News events and upcoming announcements bring the potential of market volatility, and, with that, the potential to let your emotions rule your trading. When you’re aware of what’s coming up, you have greater opportunity to take control of how you want to react to market movement – and limit the temptation to run your losses or snatch profits.
For instance, you might see that a company on which you hold a long position is going to announce a new CEO. You already have a limit order to close on this position. You think the announcement will push up the company’s value, probably through your existing limit. So, you move the limit higher, meaning you can run your profit in the changed circumstances.
You can keep up to date with market-moving news events with a variety of in-platform news and analysis resources.
On the left-hand menu you’ll find the ‘news & analysis’ tab, where you can access detailed reports of global and market news that might affect your trading positions.
Use the tabs across the top to explore the areas that you are interested in and are relevant to your trading – whether that’s the top stories, a particular market, or your ‘recommended’ news, which is personalised based on your trading history.
As well as the ‘News & Analysis’ tab, you can find market-specific news at the bottom of a market’s chart, handy if you have a position open on a market and want to keep tabs on what events or announcements might impact its movement.
For real-time news updates, you can also choose to have our live Twitter feed visible on the right side of the platform. Add it by clicking the ‘notifications’ button in the top right-hand corner of the screen.
2. Economic calendar
Announcements such as earnings and dividend payments can impact the markets you trade on. If you know announcements are coming up, and how they’ve impacted markets previously, you can plan how you might want to exit positions you have opened.
For a clear outline of announcements and macroeconomic events that could affect the markets you’re trading, you can use our economic calendar. You can find it in the left-hand menu on the platform.
Using alerts means you don’t have to constantly watch the markets and can still be confident you’ll know when you need to close a position, or set stops or limits to close them for you.
For instance, if you define your risk threshold on your open positions , you can set up alerts to notify you if the markets drop below those, and go into close your positions before you run too great a loss on it.
Or if you have already set up stops and limits, alerts can help you identify if one of them might be hit. So you can move a limit to run a profit, or potentially close a position before it even hits your stop, limiting your losses.
You can also set up alerts for economic events and technical indicators, as well as price changes.
To set price or technical indicator alerts, find the market you want to trade in our platform. Then select ‘alert’ in the top-right corner of the chart or deal ticket:
You then input the details of the alert, and click ‘set alert’.
You can set economic event alerts in our economic calendar. Just tick the box next to your chosen event.
You can receive alerts by SMS, push or email, and you can also see all your active alerts by clicking into the ‘alerts’ tab on the left-hand menu of the platform.
4. Trading signals
If you’re unsure where you want to set stops and limits, or you’ve set some and want to sense-check your analysis, you can start off by using signals.
Trading signals can help you set the parameters of your trade – they are a tool to help you identify the right time to trade forex, indices and commodities. They aren’t trading advice, but they are actionable ‘buy’ and ‘sell’ suggestions based on technical or fundamental analysis.
For instance, you could use a technical signal on the market you’re trading to see whether the stops and limits you’ve placed match the suggested exit-price targets on that market.
Trading signals can also be found on the left-hand menu in the trading platform. Find out more about how you can use them to help your trading, here.
- Use a trading plan – and stick to it – to add discipline to your trading
- Knowing when you are going to exit a trade will help you resist the temptation to snatch profits, or run losses
- You can use a variety of in-platform tools to analyse markets and be notified of changes which might impact how you want to trade