A common quote that you will often hear and one that I abide by is ‘let your profit run’ but can it ever be bad advice?
Well, rarely can that be bad advice when you are trading longer term trends that are over a month long, as doing so will basically mean that you are short changing yourself.
However, if you are looking to trade over the day to week durations, then setting targets can be a smarter move.
Being able to let your profits run is a key element to successful spread betting. Unfortunately, many new traders struggle with this.
The ability to ride the ebb and flow of the markets is just too emotional for many.
But… if you are struggling with the notion of keeping your spread bets open and letting your profits run then what you can do is trade for a set target profit and exit your trade when the target has been reached. You will also set a guaranteed stop loss on the same trade.
The good thing about trading like this is that you get to know your downside and upside of the trade without having to stress about winning or losing.
A profitable way to trade using this approach is swing trading the reverse price movements that occur from support and resistance lines.
Let Your Profit Run
The general idea is to set your target profits at at least 2 times your potential loss, so 2/1. That is the absolute bare minimum to risk reward ratio you should be looking at achieving. Better to aim for 3/1 in my opinion from the beginning and get used to making more than less.
Looking at this 4-hour chart of the GBP/USD we can see that there has been strong resistance at around the 12566 mark. This is highlighted by the arrow pointing down at the resistance line.
The price rebounds off from this resistance line and moves down to where there has been support at the 12395 mark that is highlighted by the arrow pointing up at the support line.
You then get the breakout candle that goes through the support line.
Using this breakout candle to confirm that the trend is likely to continue down, we open our trade [sell] at the start of the next candle.
If we decide to put our stop at the high of the last candle [the breakout candle] this means that we are willing to risk around 25 ticks if the trade turns against us.
Therefore, we are looking to make a minimum of 50 ticks if we are trying to make our bare minimum 2/1 risk reward ration target profit, or 75 ticks if we use or 3/1 risk reward ratio.
This is a nice little strategy to get started in spread betting as it helps limit emotions, because you know exactly where you stand so to speak when you open the trade.
If you have a larger bank and are using longer time scales, then the more profit [and loss] you can expect.
This type of trading is about as close as you can get to trading binary options and having the luxury of knowing what you stand to lose or gain from the off.
Trading like this limits your risk but you are also learning how to let your profits run [even though limited] plus you have the stop loss to fall back on should things go against you.
Have a play around with some of the free charts in a liquid market and draw some support and resistance lines to get a clear idea on the concept. You can also see what sort of profits can be made.
The good thing is you don’t need to risk any capital on practising these trade set ups.