AUTOMATING PROFIT WITH LIMIT ORDERS

                           Automating profit management through the use of limit orders is just as
important as managing risk through the use of stop orders. It might seem

counterintuitive to actually limit the amount of money a trade can make,
but as you’ll see from the examples in this book, taking profit according to
your plan is never a bad call to make. Unfortunately, many traders do not
automate the process. Instead they allow their emotions to dictate when
a trade should be closed. This is a poor practice to get into, because once
a trade is opened there is money on the line and emotions may run higher
than before the trade was opened. Greed often keeps a trader in a trade too
long, while fear often compels a trader to close a trade too early. Automating
risk management through the use of limit orders removes the decisionmaking
process from the trader and shifts it to the dealer. This allows a
trader to go about her business knowing that she has planned the trade
properly and will be taken out with a profit or a loss automatically, according
to her trading plan.
                       There are other reasons to automate the process of taking profit
other than emotional reasons. The market is a 24-hour environment and
you might not be available to close the trade when the market reaches
your profit target. Often profit targets are reached during the Londontrading session, when many traders in the United States are asleep. If
                       you work a day job, it is unlikely that you have access to monitor the
market from work, which makes automating the process even more critical.
Finally, the market can be a fast-paced environment that can change
dramatically in just a few minutes. Even though your profit target may
be reached, the market might not remain there long enough for you to
close the order if you are out and about. You could rely on mobile trading
technology, but do you really want to carry the market around in your
pocket?
               Let’s look at an example that occurred on August 19, 2009. In this
example, the trader shorted the GBP/USD during the Asian session near
the round number of $1.66. A limit order was placed near the profit target
shown in Figure 5.10. Since the trader lived in the United States, he went to
bed. Overnight the market sold off, hit the trader’s profit target briefly, and
then rallied again. If the trader had not automated his plan to take profit by
using a limit order, he would not have gotten the chance to take his profit
as planned, because he was asleep.