Using Expert Advisors for Trade Management
Definition of "Trade Management":
"Trade management is one of the most important aspects of being a successful trader. How you handle your trades after entering the market can determine your overall success. According to Tradimo the definition of trade management is the next: Trade management refers to everything a trader actively does after a trade is executed to maximize the potential profit and minimize the risk".
The trade management method has to be planned before a trade is opened. Every profitable trader has a good developed trading plan which contains rules that have to be obeyed in order for it to work successfully. The point of having a trading plan is to follow it precisely every time in terms of the timing, entry and exit rules and of course managing the trade in the meantime. The trade rules are supposed to be devised rationally before you start to trade.
Manual trading is controlled by emotions
Unfortunately when trading manually and real money is on the line, emotions tend to take over the decision making and irrational actions can be taken. The main factors that can affect the trader’s perception of the real picture are fear and greed. After the trade is placed it is very hard to act according to your trade management rules every time.
The most likely scenarios that can happen are these:
Let’s say the market moves in your favor, then you get greedy and you either close the trade to early and lose potential profit, or you let the trade run longer in hope that you double your profit but then it unexpectedly reverses and you lose what you already had.
The other case is that the price moves against you, and acting on your emotions, especially the fear of losing money, you close the trade too early losing potential profit, or even suffer a loss to your account.
In both cases the rules of the trading plan aren’t respected. These scenarios happen very often when trading manually and are impossible to occur when using an expert advisor. Once the trading is automated, all emotional decisions are replaced by the rationality of the EA which works by the entry, exit and trade management rules every single time. As the name implies, all the processes are automatically executed, the EA manages the trades and follows the previously set rules without flaw.
How can automated trade management help you
Manual trading can be very stressful and time consuming. Waiting for all your entry criteria to be fulfilled can take many hours of staring at your screen and then if you don’t act fast you can easily miss an opportunity. The trade management once the trade is opened is a very important part of being a successful trader. That again means carefully observing the market moves. Using automatic trade management in your trading guaranties no missed opportunities as the EA can work all the time without supervision. No need to wait for many hours for the right moment to enter or to adjust your trade, the EA will do all that for you.
Here are several ways how an automated trade management can help you be a more successful trader:
If the market moves in you favor and your trade starts getting profitable, the stop loss can be automatically moved to breakeven, meaning that even if the market moves against you, you have nothing to lose. By using automated trade management you won’t have to waste time waiting to manually move the stop loss to breakeven. This way the risk is nullified, you either have a winning trade or you are back at zero.
Another way that automation can help you have a better trade management and control your risk is by employing trailing stops. As soon as the price starts to move in your direction, the stop loss can be trailed keeping a constant distance from the current price. The stop loss will follow the price all the way until the take profit level, so if either one is hit you will gain profit. By using this method even the worst case scenario means that you will earn some money even if the market turns against you.
Partial closing of a position is also a functionality that an expert advisor can employ, thus reducing the risk of a big loss. For example, if you have a winning position but you are not ready to close it yet, there is an option to close only a part of the position. This way, one part of the profit is being secured and the other part is left open, greatly decreasing the risk of a big loss.
One more useful thing that an EA can do is minimize the risk by calculating the capital at risk per trade before entering the market. The general rule in trading is to risk only 1-2% of your total account balance per trade. By using automated managing, the expert advisor can take a look at your account balance and calculate the lot size accordingly without taking unnecessary risks.
Having a good risk to reward ratio is imperative to your trading success. That ratio can be easily determined before placing the trade by using automation. As a result, the stop loss and take profit levels will be calculated and set properly. The general idea here is to use R:R of at least 2:1 or 3:1, meaning that you take the risk of losing $50 for the chance of winning $150. This significantly increases your chances of being profitable in the long term.
These are some of the advantages that using automatic trade management has over manual and it can actually help you to become a better trader. All these functionalities can be included in an expert advisor, helping you to considerably decrease the risk of losing your money.
Having the discipline of sticking to the trading rules when real money is at risk can be the hardest part of trading. That’s where automated trade management has the biggest advantage. You can be sure that the trading rules will be followed every single without worrying about a thing.
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