Some of you may hear the term “Profit-holding” for the first time. This is considered one of the most difficult ways to manage money when you trade in the market. To help you understand it clearly, I will share 3 things in this article.
- What is Profit-holding?
- How to use the Profit-holding money management method?
- Why should you learn this?
What is Profit-holding?
Profit-holding means that you will keep the profits earned (no profit-taking point) and continue to open positions (orders) according to the trend you have predicted.
The more the price goes right, the more orders you open. The act that you open more and more orders is called Stuffing. When the price reverses, close all orders and leave the market.
Case 1: Profit-holding + stuffing BUY orders + average price increases
For example, this is a bullish segment of EUR/USD. I stuff BUY orders based on the EMA34 combined with the support zone.
When the price is above the EMA34, you will wait for the BUY entry. The entry points will be when the price retests the support zones and touches the EMA34 at the same time to create reversal candlestick patterns (as shown in the picture).
The exit point of all BUY orders is when the price reverses from uptrend to downtrend. The closed candlestick is below the EMA34 and it breaks the support zone.
In short, after entering a BUY order, the higher the price goes up, the more you BUY. Follow the trading method above to find new BUY positions. Only when the price reverses and the market confirms the downtrend, you will close all your BUY positions.
Below is a real trading example of Profit-holding with XAU/USD. Our fund account use this strategy to BUY 4 consecutive orders
Case 2: Profit-holding + stuffing SELL orders + average price decreases
I give an example of the gold price (XAU/USD) in a bearish cycle and use the Trend Magic indicator to enter the trade.
When Trend Magic turns from Green to Red, the market will most likely move from Uptrend to Downtrend. What you need to do is wait for Sell entries at the places where the price retests the Trend Magic line. So the more the price falls, the more you enter SELL orders.
The exit point is when Trend Magic indicator turns from red to green. Put simply, you enter and close orders for the same reason.
Below is my real trading result with USOIL. I use the Profit-holding method and stuff 6 SELL orders in a row.
The pyramid pattern
Let’s try to imagine the pyramid of Egypt. Its bottom is large. But the higher it is, the smaller it gets.
It’s quite similar to the start and finish of a trend. When a trend begins, it’s very strong and hard to break. However, the further it goes, the weaker it gets. And at a specific point, it reverses to create a new one.
Thus, to earn profits safely, you should use more money at the beginning of a trend and use less when it goes further. Let’s apply this pattern to Profit-holding method.
For example, this is an uptrend of the gold price. When the market enters the uptrend, I will open a BUY order of 2 lots. The more the price goes up, the more I open BUY positions. But the volume will gradually decrease. Combined with Trailing Stop, I designed an extremely safe but effective way to manage capital when catching the market trend.
My trading experience when using the Profit-holding method
I have tried reading a lot of articles about profit-holding instructions, how to keep profits, how to hold positions on the Coin, Forex or stock market…
They only tell about the theory. First, identify the market trend. Then trust the trading system and patiently wait for good positions, practice on the demo account… None of them are practical indeed. Because, after reading and practicing, you can’t actually use them in real trading.
My experience shows that to make profits, besides the strategy you need to train the internal factors such as psychology (overcome the fear of losing money, accept failure…), discipline, patience.
I list this factor first because it helps me reduce my fear of losing money on each trade.
My total income is $2,400 a month (average 80$ for 1 working day). My capital for Forex trading is $3,000. To create comfort and overcome fear, in each of my trades I am only allowed to lose a maximum of $60 (2% rule). My thinking now will be: “Well, if I lose $60, then that day my income is only $20. No big deal.”
It will be much more comfortable when you think like that. The fear of losing money will decrease. “If you’re right, you’ll make a lot of profits. If you’re wrong, you’ll lose $60. There’s nothing to be afraid of.”
After years of trading in this market, I discovered a fact. The more you’re afraid of losing money, the more money you lose. While those who have a comfortable mind and simple thinking earn more money daily.
So in the first step, do everything you can to reduce fear to the lowest level. Only then will you dare to stuff more orders when the market goes in line with your prediction.
Focus on the big picture of the market
The market is created by rising or falling waves one after another. The bigger the picture, the simpler the problem. BUY in an uptrend and SELL in a downtrend. Don’t focus on price movements in small time frames. You will get carried away by the market.
If you use the daily chart for analysis, you will have a larger view. Most importantly, you will gradually create a slow mindset in trading.
Think about it. When you’re slow, you learn patience. You start thinking with your reasons more than with your emotions. This is the foundation of Profit-holding method.
Reasonable partial close
When your orders are profitable as expected, close partially (1/2) to make sure that you have some profits. Then leave the rest there and raise the Stop Loss level to a reasonable level. This will reduce your fear of losing.
Partial close will make your mind more comfortable. You will gain more confidence to stuff more orders later.
Using Trailing Stop
I had a very detailed article on how to use Trailing Stop here. What is Trailing Stop? How to use it effectively in Forex trading.
Take your time to read it. I guarantee you it’s a valuable article.
Next, I will explain why you need to learn and practice this style of money management.
Why should you learn Profit-holding?
Avoid big loss
When your first order is right, there is a high chance that you have caught the right trend of the market. Use Profit-holding method and stuffing is the best way for you to have big profits.
On the contrary, when your first order is wrong, the price will hit Stop Loss and your account will only lose 1 small number (small loss). This is the advantage of profit-holding capital management method. Thanks to it, your account will hardly fall into the big loss condition.
Take advantage of market waves
An up or down wave in the market always lasts for a certain period. In each of those periods, you should only do 1 thing in each wave as I said above. It’s BUY in an up wave and SELL for the down wave.
If you’re confused with these two decisions in a big wave, it’s most likely that you will only lose and earn nothing.
When focusing on only one thing, you will take advantage of market factors to increase profits for your account.
What I share in this article may be simple but profit-holding and stuffing aren’t easy to use. This method is more of a psychology lesson than a trading skill lesson. Because to do that, you have to change the factors that come from within (emotions, psychology, discipline, patience, etc.).
Hope this article helps you trade and manage money better to earn more profits in Forex. Happy trading and see you again.
The post New Money Management Method In Forex: Profit-Holding appeared first on How To Trade Blog.