Getting into a winning trade is only half the battle. The real skill — the one that separates funded traders from blown accounts — is knowing when to hold and when to close. Most traders either close too early out of fear or hold too long out of greed. Both cost you money.
Here's the systematic approach to managing winning positions using a three-criteria candle evaluation that removes the guesswork entirely.
The Three Criteria: Candle Shape, Lower Lows, and Volume
After your entry, you need to evaluate every subsequent candle against three specific criteria. This applies whether you're long or short — just flip the direction.
"There are three criteria that we're looking to judge on our first full candle post-entry."
Criterion 1: Candle Shape / Color
"Is the candle red if we're bearish? Is the candle green if we're bullish?" This is the most basic signal — is price moving in the direction of your thesis?
But don't stop at color. Evaluate the quality of the shape: "Is it a most bearish, second most bearish, normal body bearish, neutral, or least?" A least bearish candle that happens to be red isn't the same as a full-body most bearish candle.
Criterion 2: Holding Higher Highs / Lower Lows
"Is the candle holding lower lows? If this was the area where we found support on our entry candle, can the next candle hold under that area of resistance?"
If it breaks through and holds — that's strength. If it gets stalled at the same price — that's weakness.
Criterion 3: Volume
"Are we seeing more volume or less volume relative to the previous bar? Are we seeing momentum increase or build in the direction of our thesis?"
Volume confirms conviction. A move on increasing volume tells you the market agrees with your direction.
The Two-Out-of-Three Rule
You don't need all three. You need at least two: "Generally what we want to see is at least two out of the three elements to tell us that bears (or bulls) are in control. If we have those two out of three elements, then we can look to continue to hold on to this position."
One out of three? "My time to close this winning trade would be to close it on a breakdown — ideally as close as I can towards that previous low."
Practical Example: When to Close
Michael walks through a real NQ short trade:
"Entry price was about 260-250 with two contracts, looking for a breakdown towards the high of the opening range. This was our entry candle at 13:28."
On the first full candle post-entry: "Not the best candle close. One could argue this wasn't the most bearish. The volume was strong, but the candle shape was weak, and we weren't holding lower lows."
The verdict: "I have one out of three elements. So my time to close this winning trade is now — close it as my P&L is increasing."
Treat Each Candle as a New Setup
Here's the advanced concept that makes this system powerful: "Post entry, can I treat this like a new setup? If I could treat it like a new setup, then I could pyramid in and look to build up my sizing. Or at the very least, push my stop loss up."
When you see a strong candle with increasing volume that holds above the previous high, that candle becomes a new confirmation. You can:
- Push your stop loss to the low of that new setup candle
- Add to your position (pyramid) using the aggressive entry technique
- Continue holding until the criteria fail
"If the answer is 'I would not take this trade if it was a unique setup' — then you need to look to get out of that position. If it's 'I would take this trade' — you need to continue to trust your thesis."
The Pyramiding Process
When your winning trade gives you a new confirmation candle:
"If we can get that breakout here, then my stop loss moves to the new level. Now I've increased my contracts — doubled up my position sizing. And that's all you do."
But you judge the new candle the same way: "We're going to judge this candle. It's got to close on increasing volume, strong candle shape. If we don't get that close — I've got to look to get out of this position as my P&L is increasing."
The key phrase: "as my P&L is increasing." Don't wait for the reversal. Close while you're still green on the addition.
The ES Counterexample
Michael shows the flip side with a simultaneous ES long: "This was my entry candle. Now we got two out of three things — not a strong candle shape, but good volume, held higher highs. So I'd have to continue to trust my thesis and look for a continuation narrative."
Two out of three means hold. Then "ideally, close my trade as my P&L is increasing."
Common Mistakes in Trade Management
Protecting Your Entry Too Tight
Moving your stop loss to protect a 5-point win when you're up 20 points is a recipe for getting stopped out on normal pullbacks — then watching the trade continue without you.
Holding for the Perfect Exit
Waiting for the trade to hit your maximum target when the candle criteria are telling you momentum is fading. Two out of three says hold. One out of three says close now.
Not Evaluating Each Candle
Many traders enter a trade and then stop analyzing. Every candle is a new data point. Every candle either confirms or denies your thesis.
Key Takeaways
- Evaluate three criteria on every candle — shape/color, holding highs/lows, and volume
- Two out of three = hold — your thesis is intact
- One out of three = close as P&L is increasing — don't wait for the reversal
- Treat strong candles as new setups — pyramid in or tighten your stop
- Judge each candle independently — "Would I take this trade if it was a new setup?"
- Close before giving back profits — the exit is when strength fades, not when loss appears
- The system is the same for every trade — consistency eliminates emotional decision-making
Manage Your Winners Like a Pro
At DayTrader Funding, the traders who keep their funded accounts are the ones who manage their winners ruthlessly. Get funded and apply this systematic approach to lock in profits consistently.