Putting Your Trading Book to Work

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One of the key factors that contributed to my success in trading is my effective management of my profit and loss (P&L) account.

And a key part of that is scaling my trades…

When I’m steadily growing my account, I can build up the number of contracts I trade. On the other hand, I reduce them if I’m going through a bit of a rough patch.

Put simply, I use my profits to judge my position sizes.

But you can also put your open trades to work, as long as you keep an eye on your risk management.

So let’s dive in to see how it works…

Managing Your Trading Book

As you develop as a trader, the number of positions you trade may grow. You could end up with a dozen or more open positions at any one time.

But it’s unlikely that all these positions in your “trading book” will be heading in the same direction.

While some will be in the green, others will be down money or flat. And how you manage these trades is critical to your success.

I always closely monitor the profit or loss on each trade. But I also keep watch on the P&L of the whole account. I know exactly how far ahead (or behind) I am overall.

This gives me some leeway. If I’m sitting on good profits, I can give my losing trades more time to play out. Often these went my way, allowing me to snag some outsized profits.

To be clear, I wouldn’t override a hard stop level on an individual trade.

But if a trade was hanging in the balance and I still believed an anticipated move would come, the big picture view of my account gave me the luxury of allowing these trades some room.

But I had to remain convinced of the merits of the trade. If not, then I needed to cut the position and move on to the next trade…

To Keep or Cull?

Trading with “house money” like this can add flexibility to your trading. However, it doesn’t mean you can get lax with your risk management.

A hard stop is a stop. You can’t let a small loss on an individual trade blow up to something much bigger.

And if a trade is stuck in a sideways range, you need to decide if your money can be put to better use elsewhere. There are always new promising trades coming down the pipe.

But more than anything else, you must closely monitor your profitable positions. They’re effectively financing your losing trades. So if those profits evaporate into thin air without your losing trades turning around, you’re facing a double hit to your trading account.

That said, using “active” P&L from open positions can enable you to keep positions open that you otherwise would have culled.

And over my career, that tactic has allowed me to bank profits that I would have otherwise missed.

So as long as you maintain good risk management, this can be a worthwhile technique for managing your trading account.

Happy Trading,

Larry Benedict
Editor, Trading With Larry Benedict