Many traders think the entry point is the most important part of a trade.

But the exit is far more important because it determines whether your trade is a winner or a loser.

So it’s important to plan how you’ll exit your trade before you put any money at risk.

I’ve written about my four-step method on choosing trades before here and here. And today, I’m going to show you the second part of this plan – trade management.

Once I’ve entered a trade, there are just three steps towards exiting successfully…

1. Reduce Risk

As a trade unfolds favorably, there will usually be an early opportunity to reduce the open risk on the trade.

I like to reduce risk by trailing my stop loss closer to my original entry point.

2. Eliminate Risk

Eliminating risk becomes possible as a trade continues to move favorably.

I like to eliminate risk by moving the stop loss to the original entry point.

This gives me a “free ride” on the remainder of the trade.

3. Protect Open Profits

This is the last step in my trade management process.

As a trade becomes increasingly profitable, I’ll look to protect those profits by continuing to trail my stop loss higher, as well as by taking partial profits off the table.

Now let’s see this plan in action…

Using Trade Management on Coffee Futures
On January 19, I wrote about an opportunity in the coffee futures market.

Since then, the trade has developed very nicely. Here’s an updated price chart of coffee…

After breaking through my recommended entry level of $173.55, the market has gone on to rally almost 12%.

This means there’s an excellent opportunity to move to step 2 of my trade management plan – eliminate risk.

At this point, it makes sense to move the stop loss to the initial entry point. That ensures there’s no longer any open risk on the trade.

If the market reverses violently, then the worst-case scenario would be breakeven.

On the other hand, the market could continue running higher.

In that case, I would consider moving to step 3, which is protecting open profits.

As you can see, each trade management step is crucial to successfully exiting a trade amid an unpredictable market.

A properly planned exit can help you build confidence, trade management skills, and profitability.

In the coming weeks, I’ll be keeping a close eye on coffee futures to provide an update. But no matter how the trade continues to develop, I know I’ll have an edge with my plan in place.

With careful risk management, I no longer have anything to lose on this trade.

Happy trading,

Imre Gams
Analyst, Market Minute

Source: Jeff Clark Trader