Operational profits

One of the fundamental rules of trading is to minimize losses as quickly as possible while letting profits grow. But how do successful traders put this into practice?

Letting a profitable trade run is a simple concept—if the market moves in your favor, you keep the position open to maximize returns. However, the longer you hold a trade, the greater the risk that the market will reverse against you, turning a profit into a loss.

In a fast-moving market, making the right decision can be challenging. You don’t want to close a trade too early and miss out on additional potential profits, but at the same time, you don’t want to hold a position too long and risk losing your gains.

The best approach is to stick to your trading plan. For beginners, it can be difficult to let winning trades reach their planned target, let alone keep them open for even longer.

However, if you notice that you could increase your profits by extending the duration of your trades, you might want to consider active position management.

1. Active position management
2. When should you move the stop-loss?
3. Scaling into and out of trades

Active position management

Actively managing open trades requires a more dynamic approach than simply following a passive trading plan. Instead of closing a trade as soon as it reaches the target profit or maximum loss, you can adjust your strategy based on current market conditions.

One of the most commonly used methods is trailing the stop-loss. As your trade moves into profit, you can gradually adjust the stop-loss closer to the current price, which:

• Reduces risk – The closer the stop-loss is to the current price, the smaller the potential loss.
• Locks in profits – If the market reverses, your trade closes with a profit instead of a loss.
• Maximizes returns – Allows the trade to develop into a larger gain while minimizing downside risk.

Important rule for adjusting stop-loss

• For a long (buy) position, move the stop-loss only upward.
• For a short (sell) position, move the stop-loss only downward.

Mistake to avoid

Never move the stop-loss in the opposite direction (e.g., lowering it in a buy trade) to "give the trade more room." This exposes you to unnecessary large losses.

Example of active position management:

1. You open a buy position on gold at $1,900, setting a stop-loss at $1,860 and a take-profit at $1,980.
2. The price rises to $1,940, so you move your stop-loss to $1,900 (breakeven) and take-profit to $2,020.
3. If the price falls back to $1,900, the trade closes with no loss.
4. If gold continues rising, you keep adjusting the stop-loss higher, securing profits while allowing further upside potential.

This approach allows you to manage trades flexibly while still protecting your capital from unnecessary losses.

When should you move the stop loss?

Some traders adjust the stop loss only when certain conditions are met. For example, they might wait for the market to reach a new price level, break a key support or resistance level, or enter a period of consolidation.

Other traders set specific rules for adjusting the stop loss. For instance, they might move the stop loss whenever the price moves by 50% of the total initial risk.

In our previous example, your total risk (1900 - 1860) is 40 points. If you decide to move the stop loss by 50% of the total risk, it means that for every 20-point upward price movement, you will increase your stop loss by 20 points.

Scaling in and out of trades

• Another strategy to increase profits or secure returns is position scaling.

• Scaling into a trade involves adding new positions in a market that is moving in your favor, thereby increasing your exposure.

• Scaling out of a trade means gradually closing parts of your open position to lock in profits before the market turns against you.