Managing Open Positions: Active Trade Management

Opening a trade is just the beginning. What you do while a position is open often determines whether you end up with a profit or loss. Active position management is the difference between hoping for results and engineering them. This guide covers everything you need to know about managing trades from entry to exit.

What is Position Management?

Position management refers to all the decisions and actions you take between entering and exiting a trade. It includes monitoring price action, adjusting stop losses, taking partial profits, adding to positions, and ultimately closing the trade at the right time.

Many traders spend hours analyzing entry points but give little thought to what happens after. They enter a trade and then either watch it obsessively or ignore it entirely. Neither approach is optimal. Active position management requires a balanced, systematic approach.

The Position Management Framework

Pre-Trade Planning

Effective management starts before you enter. Every trade should have a complete plan that includes:

• Entry criteria: The specific conditions that trigger your entry
• Initial stop loss: Your maximum acceptable loss on the trade
• Profit targets: One or more levels where you will take profits
• Position size: How many shares or contracts based on your risk
• Time horizon: How long you expect to be in the trade
• Management rules: When and how you will adjust the position

The Three Phases of a Trade

Every trade goes through distinct phases, each requiring different management approaches:

Phase 1: Initial Risk Period

Right after entry, you face maximum risk. Your full position is exposed and you have no profits to protect. During this phase:

• Monitor for immediate signs the trade is wrong
• Keep your stop loss in place without moving it further away
• Give the trade room to work unless your thesis is clearly invalid

Phase 2: Working Phase

The trade is moving in your direction but has not reached targets. This is where most management decisions occur:

• Consider trailing your stop to reduce risk
• Watch for signs of momentum slowing
• Evaluate whether to take partial profits

Phase 3: Profit Protection

You have significant unrealized gains. The priority shifts from making more to keeping what you have:

• Tighten stops to lock in profits
• Take partial profits at predetermined levels
• Watch for reversal signals

Essential Position Management Rules

Rule 1: Never Move Stops Further Away

Your initial stop represents your maximum acceptable loss. Moving it further gives you more ways to lose and fewer ways to win. If the trade requires a wider stop, you sized the position wrong.

Rule 2: Use Time Stops

If a trade is not working within your expected timeframe, consider exiting. A swing trade that goes sideways for weeks is tying up capital that could be deployed elsewhere.

Rule 3: Scale Out at Predetermined Levels

Taking partial profits at targets locks in gains while allowing remaining position to run. Common approaches include taking half at the first target and trailing the rest.

Rule 4: Honor Your Original Plan

It is tempting to abandon your plan when emotions run high. Write your plan down before entering and follow it unless market conditions have fundamentally changed.

Common Management Scenarios

Scenario 1: Trade Goes Immediately Against You

The trade moves against you right after entry. Options include:

• Honor your stop: If price hits your predetermined stop, exit
• Reassess: If conditions have changed, you may exit early
• Hold: If your thesis is intact, let the trade work

Never average down into a losing position hoping it will recover. This increases your risk at exactly the wrong time.

Scenario 2: Quick Move in Your Favor

Price shoots up quickly after entry. The temptation is to take profits immediately, but consider:

• Is this the move you expected, or just volatility?
• Have you reached your target?
• Can you move stop to breakeven and let it run?

Scenario 3: Slow Grind in Your Direction

The trade is working but slowly. Patience is key:

• Trail your stop below swing lows (for longs)
• Do not close just because it is taking longer than expected
• Consider time-based adjustment rules

Scenario 4: Trading at Breakeven

Price has moved in your favor and come back. Consider whether:

• Your thesis is still valid
• Support or resistance levels are holding
• You should reduce position size to manage frustration

Managing Multiple Positions

When you have several open positions, additional considerations apply:

Portfolio Heat

Track your total risk across all positions. If you risk 1% per trade and have 5 positions, you have 5% portfolio heat. During volatile markets, reduce either position count or size per position.

Correlation Risk

Multiple positions in the same sector or with the same directional bias compound risk. Three long tech stocks might all drop together on sector-wide news.

Attention Allocation

You cannot actively manage 20 positions effectively. Limit open positions to a number you can reasonably monitor, typically 3-8 for active traders.

Building Your Management System

Step 1: Define Your Rules

Create specific rules for each scenario you might encounter. Document when you will trail stops, take profits, and exit positions.

Step 2: Create Checklists

Use checklists for regular position reviews. Daily or weekly reviews ensure nothing falls through the cracks.

Step 3: Journal Your Decisions

Record every management decision and why you made it. Review later to identify patterns and improve.

Step 4: Review and Refine

Regularly analyze your management decisions. Did early profit taking cost you gains? Did holding too long turn winners into losers?

Summary

Managing open positions is where trading theory meets reality. Success requires a systematic approach that includes pre-trade planning, clear rules for different scenarios, and disciplined execution. Never move stops further away from your entry. Use time stops for trades that are not working. Scale out at predetermined levels. And always honor your original plan unless conditions have fundamentally changed.

The best traders spend more time on position management than entry analysis. They know that consistent profits come from consistent management, not from perfect entries.

Learn more: trailing profit stops and partial exit strategies.