What Is Trade Management?

Trade management is all about adjusting your open trades to make the most out of good ones and reduce risks. Instead of just setting a trade and forgetting it, you stay flexible and adjust based on how things are going.

When things are going well but might slow down, you can "scale out" by closing part of the trade to lock in some profit while still leaving a portion open. On the flip side, if your trade looks even better, you might "scale in" by adding to your position, but only when it’s already going in your favour. 

Adjusting your stop loss is another way to protect gains by moving it closer to the current price, though you’ll want to avoid setting it too tight too soon, as that could cut off a trade with more potential.

What is Trade Management

Trade management is the process of making decisions about a trade which is already open. This would be the opposite of just “set and forget.” Think of it as a flexible way to increase your return on profitable trades.

A lot of new traders focus on finding the perfect setup, thinking the entry is everything. But the reality? A skilled trader could pick entries almost at random and still come out ahead if they manage the trade well. 

Trade management should begin before the trade is even open, as you make a broad plan of the actions you’re likely to take, and where you’ll take those actions. Just like in chess, you’ll start thinking a few moves ahead, mapping out different scenarios and what actions you might take.

Trade management decisions commonly include adjusting your stop loss, changing position size, or exiting the trade .Let’s go through each of these and you can begin to incorporate them into your trading.

Scaling Out of a Trade

Scaling out is a technique where you close a portion of a profitable trade. It locks in some profit while leaving the rest of the position open. 

A scale out should be used when the probability of a trade falls, but there’s still more potential in the trade for further profits. Basically, scaling out lets you reduce exposure without fully exiting. For example, you might close 50% or 33% of the position and leave the rest in play.

Scaling out also helps manage psychological biases, such as the urge to "protect winnings" and keeps decisions based on probabilities, not emotions. To keep it simple, consider using preset scale out amounts like 50% or 33% of your position, especially when the price reaches an area you are reassessing your risk.

Scaling Into a Trade

Scaling in is the opposite to scaling out, you increase the position size as the trade becomes more favourable. 

But there’s a key rule, only scale into profitable trades, never add to a losing one. If a trade is going against you, adding more usually just digs a deeper hole due to loss aversion (the urge to avoid accepting a loss).

However, you should scale into a profitable trade if the probabilities increase. For example: If you enter a trade with a small position against the trend and then the trend changes in your favour, scaling in makes sense. You’re taking advantage of improved odds without adding unnecessary risk.

The best time to scale in is when both probability has increased and risk has decreased. This combination gives you a safer cushion and boosts your trade’s potential without overcommitting too soon. But keep it balanced, scaling in isn’t about adjusting constantly. Instead, it’s about responding to favourable changes. 

Scaling in also works well alongside scaling out. You can scale out as the probabilities reduce, and then scale back in when they increase.

Adjusting the Stop Loss

Adjusting your stop loss involves moving it closer to the current price to lock in profit or reduce exposure to unnecessary risk. It’s a defensive move to protect gains and manage risk as the trade moves into profit. The goal is to respond to changes in market context without closing out profitable trades too early.

However, moving a stop loss too soon, such as to break-even the moment the trade turns profitable, can limit your long-term expectancy. While this seems “risk-free,” it can prematurely close out trades that might have otherwise been profitable, especially if the price naturally retests the entry area before moving in your favour.

Here are some examples of when you may choose to adjust the stop loss:

• The market structure changes against your trade, or shows signs of changing.
• You reach an important area or level where the price may reverse against you.

Which Approach Is Best?

An important part of trading is choosing the right approach for each market situation. Rather than betting on a single outcome, effective trading means preparing for multiple possibilities and adapting to changing conditions.

Within the Duomo Method we teach our members the skills to read market context, analyse potential outcomes, and assign specific actions. This lets them manage trades based on shifting probabilities. 

It’s not as simple as choosing one approach for every situation, you’re actively positioning yourself for each outcome, adjusting as probabilities change. A breakthrough a level may mean scaling back in, while a move against you signals a scale out or full exit.