Placing trades to maximise profits should always be a key focus.
Most traders who are new to the game often overlook the importance of how to strategically open a trade in order to be in a comfortable position during the trade. If you are a trader who does not apply the three tier strategy when placing trades then you need to read this article.
Consider this; you locate a potential trade in a market and you feel the market will move up by at least 100 pips. Most traders at this point would place a trade (£’s per pip) in accordance to the maximum they would like to place on the line and/or determined by their individual trading budget. Let’s say for example £5 per pip via a spread betting broker.
If the market indeed moves the full 100 pips, the trader would make £500. But if the market goes the other way (as they often do), then the trader will take a loss and the spread betting broker takes your money. But there is another way.
By placing a trade which is divisible by three, i.e. £9 per pip, you allow yourself to remove yourself from the market in three profitable stages or one unprofitable stage (if your stop loss is hit). You see if your stop loss is hit then you will lose your money regardless and since market conditions are constantly changing then that is always a possibility. What in reality actually often happens during a losing trade or when the markets go the other way is that they first become profitable but later end with the trader registering a loss against their account balance. To counteract this, we recommend doing the following.
We recommend all traders to place Bollinger bands (bb) on their charts so they can action the trade in the following way. We shall use the example above to illustrate the strategy.
O: Place trade with a £9 per pip (example price) which is divisible by three
O: Price moves to the central point of bb and the trader closes a 1/3 of the trade i.e. £3 (for cautious traders, placing a stop loss at zero at this point may be considered to ensure a profitable trade).
O: Price moves to the opposite side of bb and the trade closes another 1/3 of the trade i.e. £3 (if the trader has not already done so then they should zero their stop loss and ensure they lose no money if the market goes against them (a market often has a knee jerk type counteraction when it reaches the opposite side of the bb).
O: The final 1/3 of the trade is allowed to run as long as possible so the trader can profit from strong or weak rallies. Most traders make majority of their money this way.
The truth of the matter is ‘nobody’ can predict ‘exactly’ what the markets shall do but by applying this three tier system you can ensure you take as many profits as possible and at different stages because maximising your gains shall ensure you will always be in profit.