How to manage a winning trade?
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On most trading sites, you are advised to "Let your winnings run". Should you follow this rule on all your trades? Are there other methods for managing a winning trade? How do you apply them in trading?
Let your winnings run is one of the methods to manage your winning trades in trading but it is not the only one. It is not an obligation. On the other hand, what is important is that your winning trades pay you more than you lose on your losing trades. In other words, on each trade, you must minimize your risk so that it is lower than the expected gain on your trades.
Letting your winnings run is trading advice that we often hear on the stock markets. But you must differentiate a trade from a long-term investment. If your goal is to build a stock market portfolio yourself, from a long-term investment perspective, then yes you must let your winnings run. The notion of stock portfolio diversification is then extremely important. You build yourself a wallet and then hardly touch it. You will lose on some assets and win on others. Beginners then often make the mistake of wanting to quickly take their winnings on their winning positions. If you do not let your winnings run and you let your losses run, it is impossible to win.
If you are trading (short, medium or long term), it is different. You have two options:
- Either you let your winnings run
- Or set yourself a price objective
If you have a price objective, you must therefore place a take profit. You should never move it. If your objective is reached, your position is cut automatically.
The decision to let your winnings run or to operate with a take profit is made before opening a position. Some traders only work with take objectives, others always try to let their gains run and some use both methods. The important thing is to know in advance, depending on the chart configuration and your trading strategy whether or not you will operate with a take profit or let your gains run (before opening a position!).
Letting your winnings run doesn't mean going after the impossible. If you have opted for this type of profit taking method on your trade, the position exit will be either:
- Via your stop loss: As the price goes in the right direction for your trade, you will move your stop loss to protect your winnings. For example, if you are buying, you can move your stop loss to each new lowest point, formed by the price. This can also be under a support, a moving average, ora technical layout, below a key threshold.
- Via a manual exit: It is often said that you have to let your earnings run until the trend is exhausted. Yes, but that doesn't mean you have to wait for a turnaround to exit your winning trade. If your technical analysis of the chart tells you that a reversal is likely and you estimate for x reasons that the price is on a high/low point, you can take your profits without waiting for your stop to be reached. For example, you are buying but a bearish divergence has formed on the price. If you no longer believe in the rise, cut your position and take your winnings. You should only let your winnings run if you believe in the movement’s continuation.
A trader must therefore either let his earnings run or operate by price objective. But, it is quite possible to mix the two methods to exit a winning trade. If you have opted for the solution of letting your winnings run, the question does not arise. You must apply one of the two solutions mentioned above to close your trade. On the other hand, if you operate by price objective, it may be that you anticipate a continuation of the movement which makes you want to let your winnings run.
In this case, you must stick to your basic plan which is to take your profits if your goal is achieved. However, you can take only a portion of your winnings. It is quite possible to cut half of your position and let your winnings run on the rest of the position.
This hybrid method is generally applied when the price is in full rally. Once you reach your goal, you canthen place your stop loss to follow the movement closely. If the movement continues, you make additional gains, and if a reversal occurs, your stop loss is there to protect you (and to not attack your gains too much on the rest of your position).
Whichever method you choose to exit your winning trades, it is very important that you protect your winnings. This involves moving your stop loss to follow the movement (even if you are working with a take profit). For this reason, you should choose a unit of time that matches your investor profile.
If you can only spend one hour a day trading, it makes sense to not take short-term positions. Instead, it makes more sense to choose large units of time that allow you to move your stop loss correctly, to follow the movement. Another solution is to use a trailing stop but you must determine in advance a relevant setting for the unit of time and the products you are trading.
Is ‘Let your winnings run’, a golden rule of trading?
Let your winnings run is one of the methods to manage your winning trades in trading but it is not the only one. It is not an obligation. On the other hand, what is important is that your winning trades pay you more than you lose on your losing trades. In other words, on each trade, you must minimize your risk so that it is lower than the expected gain on your trades.
Letting your winnings run is trading advice that we often hear on the stock markets. But you must differentiate a trade from a long-term investment. If your goal is to build a stock market portfolio yourself, from a long-term investment perspective, then yes you must let your winnings run. The notion of stock portfolio diversification is then extremely important. You build yourself a wallet and then hardly touch it. You will lose on some assets and win on others. Beginners then often make the mistake of wanting to quickly take their winnings on their winning positions. If you do not let your winnings run and you let your losses run, it is impossible to win.
If you are trading (short, medium or long term), it is different. You have two options:
- Either you let your winnings run
- Or set yourself a price objective
If you have a price objective, you must therefore place a take profit. You should never move it. If your objective is reached, your position is cut automatically.
The decision to let your winnings run or to operate with a take profit is made before opening a position. Some traders only work with take objectives, others always try to let their gains run and some use both methods. The important thing is to know in advance, depending on the chart configuration and your trading strategy whether or not you will operate with a take profit or let your gains run (before opening a position!).
What does ‘Letting your winnings run’ mean?
Letting your winnings run doesn't mean going after the impossible. If you have opted for this type of profit taking method on your trade, the position exit will be either:
- Via your stop loss: As the price goes in the right direction for your trade, you will move your stop loss to protect your winnings. For example, if you are buying, you can move your stop loss to each new lowest point, formed by the price. This can also be under a support, a moving average, ora technical layout, below a key threshold.
- Via a manual exit: It is often said that you have to let your earnings run until the trend is exhausted. Yes, but that doesn't mean you have to wait for a turnaround to exit your winning trade. If your technical analysis of the chart tells you that a reversal is likely and you estimate for x reasons that the price is on a high/low point, you can take your profits without waiting for your stop to be reached. For example, you are buying but a bearish divergence has formed on the price. If you no longer believe in the rise, cut your position and take your winnings. You should only let your winnings run if you believe in the movement’s continuation.
A hybrid method to manage your winning trades
A trader must therefore either let his earnings run or operate by price objective. But, it is quite possible to mix the two methods to exit a winning trade. If you have opted for the solution of letting your winnings run, the question does not arise. You must apply one of the two solutions mentioned above to close your trade. On the other hand, if you operate by price objective, it may be that you anticipate a continuation of the movement which makes you want to let your winnings run.
In this case, you must stick to your basic plan which is to take your profits if your goal is achieved. However, you can take only a portion of your winnings. It is quite possible to cut half of your position and let your winnings run on the rest of the position.
This hybrid method is generally applied when the price is in full rally. Once you reach your goal, you canthen place your stop loss to follow the movement closely. If the movement continues, you make additional gains, and if a reversal occurs, your stop loss is there to protect you (and to not attack your gains too much on the rest of your position).
One watchword: protect your winnings!
Whichever method you choose to exit your winning trades, it is very important that you protect your winnings. This involves moving your stop loss to follow the movement (even if you are working with a take profit). For this reason, you should choose a unit of time that matches your investor profile.
If you can only spend one hour a day trading, it makes sense to not take short-term positions. Instead, it makes more sense to choose large units of time that allow you to move your stop loss correctly, to follow the movement. Another solution is to use a trailing stop but you must determine in advance a relevant setting for the unit of time and the products you are trading.
