When to Close Trades Early or Let them Run

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Video Transcription:

Hello, traders. Welcome to the Price Action Course and the fifth module, Order Flow. In this video, I’m going show you how to use order flow. And, that is to decide whether to cut your trades short and take your profits or to let them run to increase your profits. Now, we’re going to use everything we have learned so far in order to make these decisions and we’re going to go through a new chart, a clean and naked chart. And, we’re going to start with the trade, the targets, and the decision to let it run or cut it short.

Now, everything we have learned on this module is going to help us when deciding if we should take a trade or not. More importantly, it’ll help us when we’re already in a winning trade and are looking to take profit. Should we close it or let it run? The first thing we are going to use is the acceleration of the move. If price action is decelerating but still moving in our favor, we might want to close on the next screen. And, this is very important because let’s say that we are in a long trade on the US dollar and the acceleration moves are going shorter and shorter from 250 PIPs to 180, to 80 PIPs. We know that the bearish pressure, or the bearish orders, that are getting filled are strong enough to start decelerating the move and start making deeper corrections.

Closing trades early

So, we are choosing to take our profits before the market grows over. But, if price action is strengthening, or gaining acceleration, we are going to trade our stocks on the next corrective swing and keep the trade on locking our profits. We are also going to assess the depthness of the corrective swings. This will tell us whether we have more orders coming in that might disrupt with the actual structure and roll over. In the end, remember, that it’s up to you how you want to manage your trade. We always use targets, but you can use order flow analysis to close half of your position and let the rest run. And, remember that if you don’t feel comfortable on keeping a trade for too long, it’s fine for you to just take profits at the next big area or, if you are using ratios, at the next big ratio.

When to close trades early

But, if you are using market flow analysis, you might want to give it a try just to take half of your position off, trail your stops to the next corrective swing, and let the rest run. So right now we’re going to go to a Euro/GBP chart and our forward chart and we’re going to start a trade. I think it’s a breakout trade and we’re going to start reading the market. Alright, so here we go, here’s the Euro/GBP forward chart. And, as you can see, we are in a range right now. And we are looking for a breakout trade of out of this range. So, what we’re going to do, I mean we’re going to do these very quickly because what we are aiming at is the actual order flow analysis that we are going to be doing on this trade. So, we wait for the actual breakout to happen and you can see that we have the breakout here.

Now, let me just use a rectangle to show you where the actual short position is. And, of course, I’m going to use a line right here for our stop loss orders. Okay, remember that you always use stop loss orders. And, of course, we are going to measure the height of the range to see where our target should go. Actually, this is quite a tight stop loss for a breakout and we are looking for 200 PIPs on the down side. But, I mean, if you put your stops at the top of the range, I know the price can just move back up and re-enter the range and then re-break the range to the down side. But, I don’t really feel comfortable just holding such a losing position first and just waiting and hoping that price will break to the downside. If I’m wrong, I want to be out as quickly as possible. And we’re going to measure the acceleration of the move to the downside, okay.

Now, you can see that from the second swing low to the third swing low, we have 196 PIPs. And you have to account also from this swing low to the next swing low. And right here we have 148 PIPs. Now, let me just get rid of a couple of these measurements that we actually don’t need and let me just measure the depthness of this corrective move. Now check this out, guys, this is what I’m talking about. We went short right here at the breakout of this range and then we had a corrective move of 130 PIPs before the next swing low. The acceleration of the move is about 148 PIPs and we have corrected 116 PIPs. This means that we have gained strength to the downside and the corrective moves are getting thinner and thinner. Okay, because right here 130 PIPs corrective move and right here we have our 116 corrective move. And then, we have an acceleration of 196 PIPs, which means that the corrective moves are shallower. But, the acceleration, or the moves from swing low from swing low, are deeper. And this means that we are gaining strength to the downside and right now we are in a corrective phase, okay. We have our stops right here and we are in a corrective phase that if you notice is about 185 PIPs. What does this mean? This means that the market is actually gaining strength on the bull side and we might be rolling over, okay? But we have to use everything that we have learned on this course.

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So, what we’re going to use, is we are going to use…let me just get rid of this. And we’re going to use a horizontal line at these lows, okay? And if price breaks above these lows, okay, it will mean that it had made up more than 200 PIPs correction. Which means that it’s a larger correction than these acceleration moves. Which means that we should get immediately out of the trade. So, we are going to move our stops right here above the round 7600 level, which is also a very strong psychological level. And, we are actually looking in on this trade about 189 PIPs, which were our first targets in the first place, okay.

Now, this how actually you use order flow analysis to hold your trades when you’re trading effects, or any instruments, for that matter. Now, what we’re going to do here is we are going to wait for price to react to these very important levels. Okay. This very important zone which you can see that goes from the low of the swing to the base of the swing. And if we break above this base we should definitely get out of the trade.

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