Recently, one of the Patreon supporters asked this: I’m in a short trade, the price has moved in the downward direction well enough, but the price is now starting to range. How should I deal with this situation?
There is a very simple rule I follow in these scenarios: When in doubt, move the stop-loss to breakeven. If the price continues to move in the entry direction, you continue to make a profit. And if the price reverses in the opposite direction, you have no risk assuming you have also included broker charges in the breakeven point. This is a general rule and is good for most scenarios.
In some scenarios, the price itself will present a different stop-loss method. Because the price was ranging in this setup, another idea was to set the stop-loss above the range area. If the price breaks below the range, you make more profit. And if the price breaks above the range, you book a small profit which is better than breakeven.
In other scenarios where there is no range to set the stop-loss after, I sometimes prefer taking partial profits and moving the stop-loss to breakeven. This way, you still book some profit instead of booking nothing if the price goes back to breakeven. The disadvantage of this is that you will also make less profit if the price continues to move in the entry direction.
Now you might be wondering, how do you decide whether to take partial profit and move the stop-loss to breakeven or take no partial profit and only move the stop-loss to breakeven?
The answer is in the probability. If you take a long trade and the price shows a reversal pattern near a resistance area, then the price has a higher probability of reversing. In this case, it is a good idea to prefer taking partial profits and moving the stop-loss to breakeven. But if the reversal pattern appears at a random place, like not near support/resistance, we don’t know the probability of complete reversal. In this case, to protect the downside, it is a good idea to at least move the stop-loss to breakeven.
That’s all!
Trading Rush
