Cut your losses and let your profits run! Who hasn’t heard that familiar trading “truth” and can understand that meaning of it.
On the surface it seems to make a lot of sense. Many traders do the exact opposite where they:
Cut winning trades off out of the fear of the market taking back some of the gain
Let the losing trades keep losing in the hope that it comes back
Do those two things enough times and you can be guaranteed that your trading career will be finished long before it gets a change to get going.
This applies to any Forex trading strategy you may be using. This applies to both indicator based trading and trading via price action (my favorite).
There is a huge problem, especially with newbie traders, of following these sayings blindly.
So why do I say that it makes sense “on the surface”.
The Truth About Letting Profits Run
The problem with simply saying “let your profits run” is that it never mentions when to get out. It never mentions that there are times you should not let your profits run.
Let profits run in range
Letting profits run in a range
This chart is in consolidation and there are trades indicated at each of the squares that would have your trade in profit. Letting profits run in two of these trades could have given you a scratch trade when you were full in profit.
And that’s just with this outcome. This is hindsight.
It is quite possible that the first short Forex trade not only returned to break even but could have just as easily busted to the upside. This would have been disastrous for any trader that could have lead to revenge trading.
In the last short trade, even though there is a price action trading clue that the downside break was coming, that is just a probability. It could have turned around on you.