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As soon as you execute a trade put in a protective stop. If you're long the market (i.e., you want it to go up) put your stop at a point under where you bought so as to limit your risk if the market goes against you. For a short position, place your stop over where you entered.
Once your trade becomes profitable you can protect at least part of that gain by adjusting your protective stop so that it's closer to the market. One of the best ways to do that is by moving the stop so that it's one or two pivots behind the market. Here's an example:
Moving the protective stop to lock in your profits is only part of what you must do during an open trade. Additionally, you must always watch for signs the market is turning against you. The chart above shows two signs of strength coming in at the same time making it time to take profits and cover (i.e., exit) the short.
The two vertical lines on the chart show a two-bar reversal on much higher than average volume. This strongly suggests strength and was confirmed the next day when the bearish trend line was broken.
Waiting for your protective stop to be hit can be expensive. Use this next method to stay in trends longer and protect more of your gains: If you are long, then each close must be higher then the previous close. Allow only one down close, not two conconsecutive down closes. If you have gone short, make sure that each close is lower than the preceding close; do not allow two consecutive up closes. Ignore closes that are roughly equal to the close of the previous bar. Here is an example:
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