“You have to start with your goal”  – Ray Dalio, Market Wizard

Last week we spoke about objectives and in particular, how “focusing on the money” usually pushes traders off track. We concluded that the only viable objective is to “trade well”. Since then, I have received questions on how to define good objectives for any given trade. That is what we will explore today.

Time is the Overriding Factor

Let’s face it: most people need to trade around their day job. This means that they have perhaps a couple of hours, split in 30 minute session, throughout the day that they can devote to trading. That’s quite allright – if they structure their trades in line with their time availability.

Your time availability is the first thing that defines objectives for your trades:

  • Time availability defines how long you can stay in front of screens
  • The amount of screentime defines your trade management rules
  • Your trade management rules define your objectives for the trade

It’s useless to want short-term, intrasession trades, if you can’t actually be in front of screens to properly manage the trade.

In the same way, it’s not optimal to trade only position trades if you do have various hours a day to dedicate to this task.

Trade Management by Obejective

Now let’s go through some examples of trade management that cover three different Objectives: Intraday, Multi-Day, Position.

Intraday: you have at least enough time on your hands to sit through one entire session (Asian Session, European Session or North American session). Your analysis has led you to identify a potential trade setup. Here are common sense guidelines for managing this kind of a trade:

  • Your stop-loss positioning needs to take into account the volatility of the session you’re trading. The idea is that you need to give the session enough space to wiggle around and make it’s directional move (hopefully in your favour) without being prematurely unseated.
  • You stay alert for short-term reversal patterns (perhaps hourly reversal candles or sharp momentum reversals) during the session, that can help you scratch the trade and spare yourself a full stop out.
  • If the market makes no evident turn-around, then you evaluate the performance of your trade into the session close and decide whether to roll it into the next session, hence repeating the same management procedure, or close the trade. If the session is closing strongly, it might make sense to hold on for more (letting the trade run). If the session is closing rather neutral, it might make sense to close the trade.

Multi-day: you have less time to follow the markets. Perhaps your job allows you some flexibility or you can at least check in on the market at regular inteverals. You cannot afford short term trades. You need to adopt a slightly more relaxed approach. Your analysis has led you to identify a potential trade setup. Here are common sense guidelines for managing this kind of a trade:

  • Your stop-loss positioning needs to take into account the average daily volatility of the asset you’re trading. The idea is that you need to give the market enough space to wiggle around and make it’s directional move for the day (hopefully in your favour) without being prematurely unseated.
  • You stay alert for session reversals (so for example, if you initiate the trade during the European session, you don’t want the session to be closing against your position as North America takes up the baton), that can help you scratch the trade and spare yourself a full stop out.
  • If the market makes no evident turn-around, then you evaluate the performance of your trade into the North American close and decide whether to roll it into the next session, hence repeating the same management procedure, or close the trade. If the day is closing strongly, it might make sense to hold on for more (letting the trade run). If the day is closing rather neutral, it might make sense to close the trade or tighten the stop loss.

Position: you have time to prepare your trading plans over the weekend, but during the week you only have a bit of time in the evening before bed and/or a bit of time in the morning to follow the markets. You cannot afford short term trades ortrades that may need monitoring during the day. You need to adopt a longer-term approach. Your analysis has led you to identify a potential trade setup. Here are common sense guidelines for managing this kind of a trade:

  • Your stop-loss positioning needs to take into account the average weekly volatility of the asset you’re trading. The idea is that you need to give the market enough space to wiggle around and make it’s directional move for the week (hopefully in your favour) without being prematurely unseated.
  • You stay alert for daily reversals. If you initiate the trade on Monday, you don’t want Monday to be closing against your position. If you initiate the trade on Monday, and the trade goes well but Tuesday the trade makes a strong reversal candle pattern that pressures your entry, again you don’t want to hold that trade. If you get strong closes in your favour for a couple of days, then you have of course more space to maneuvre. The idea is always to scratch the trade and spare yourself a full stop out, when conditions dictate.
  • If the market makes no evident turn-around for a couple of days, then you evaluate the performance of your trade into the week’s close and decide whether to roll it into the next week, hence repeating the same management procedure, or close the trade. If the week is closing strongly, it might make sense to hold on for more (letting the trade run). If the week is closing rather neutral, it might make sense to close the trade or tighten the stop loss.

Over to You

Having clear objectives for our trades is essential. And those very objectives offer a certain mandate for our trade management. The examples above are not “pie in the sky” examples. Since we practice what we preach, they are examples of how we manage our own short term and weekly trade signals.

Make no mistake: any financial goals you may have can be reached if you trade well. But trading well requires putting aside financial concerns and making sure there is no pressure to perform, no pressure to find trades, no pressure to act. Trading well means first and foremost selecting correct objectives for your trades, and being able to manage them in line with those objectives, by evaluating the market’s behaviour at certain jucntures.

This is the only way to truely “trade what you see” and know when to cut trades at the knees or give them a chance to run.

Good Luck!

About the Author

Justin Paolini is a Forex trader and member of the team at  www.fxrenew.com, a provider of Forex signals from ex-bank and hedge fund traders (get a free trial), or get FREE access to the Advanced Forex Course for Smart Traders. If you like his writing you can subscribe to the newsletter for free.