Before we get into the trading of multiple lots, here is a cautionary note. Remember that each time a trader opens an additional lot, they take on more risk. For example, if a trader opens one position with a 100 pip stop, they are taking on 100 pips of risk. If they open three positions, they are taking on 300 pips of risk! Be certain that your account size can handle the amount of risk that you are taking on.
First of all we know that we are only interested in buying this GBPAUD pair since it is in an uptrend. We know this for several reasons: the pair has been making higher highs and higher lows; it is trading above the 200 period Simple Moving Average and pulling away from it; and, at the time of this chart the GBP was very strong and the AUD was very weak.
Now that we know the direction we want to trade the pair, we can consult the chart below to learn about the basics of trailing stops and multiple lots. We will see how these principles can be put into action on the current 4 hour chart of this GBPAUD currency pair.
For the sake of this example, we would enter the trade with three 10K positions at the point labeled “Long Entry”. The rationale for our entry is that price has broken through resistance in an uptrend by taking out the previous high and triggering our entry. Our stop would be placed at the “Stop 1” level on the chart.
As price continues to move in our favor and breaks above the second green resistance level, we would close one of our three positions and manually move the stop to the “Stop 2” level.
By doing so we have locked in 65 pips of profit and placed our stop above a new support level so that our two remaining open positions are protected. With our stop at “Stop 2”, it is still below our entry but by advancing it we have lessened the amount that we have at risk.
Since price continues to move in our favor, when it moves above our next green resistance level we would close out one more position for a gain of 200 pips and manually move our stop to “Stop 3”. As was the case with the previous position, we have locked in additional profit and, by trailing our stop to the next level of support we are protecting our “floating profit” on the remaining third position which is still open.
Also, our stop is now above our entry. Should the pair retrace and hit our stop we would have roughly 125 pips of profit…the distance between our entry and “Stop 3”.
On our third and last open position we have a choice: close it out when price takes out the next level of resistance and lock in 330 pips; or, move the stop to the “Stop 4” level with the plan that the pair will continue to move higher and we will simply stay in the trade and manually trail the stop up as we have been doing.
The choice is yours and either would be a valid trading decision.
As you can see, by employing this technique the trader is positioning themselves to lock in profit as a trade continues to move in their favor as well as setting themselves up to capture additional pips should the pair continue to trend to the upside.
---Written by Richard Krivo
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