《Advanced Trade Management》.doc

IntroductionThe term “Trade Management” refers to methods and manipulations which can be followed before and after a trade has been made to ensure a protection from undesirable movements of the tradable and at the same time to guarantee that if the position finally proved to be right, the profit will compensate the risk taken. There are two concepts of trade management mentioned in the literature: the use of trailing stop and the reward-to-risk ratio (also known as Profit/Loss ratio) . In respect to the trailing stop, in the case of a long position, the trader sets an initial stop loss level which is raised as long as the price of the tradable rises. In other words, the price “trails” the stop loss level upward. Similarly, in the case of a short position, an initial stop loss level declines as long as the price of the tradable declines. That is, the price “trails” the stop loss level downward. As far as the Profit/Loss ratio is concerned, the trader determines an initial stop loss level before entering a trade and calculates the loss he will take if the stop is reached. He then moves on and calculates the expected profit from the trade. Finally, he calculates the Profit/Loss ratio and discards the trade if this ratio is less than an amount, otherwise he moves on and makes the trade. In the present article I will introduce and discuss three subtle but important enhancements to the above concepts of trade management:? The use of two intraday stop-loss levels. The use of a threshold (CE level) which will be used to trigger the change of the original expectations from the position. The use of dynamic Reward/Risk ratios. Using Two Intraday Stop-Loss LevelsAlmost all traders have faced the frustrating situation where a stop loss level is penetrated during a day just to force him to exit a trade and immediately after that the market starts moving in the favor of the original position. In many of these cases, as soon as the stop loss level is penetrated, the rigid trad