Many traders feel that they are able to pick good entry points for trades, but they struggle with when to exit the trade. There is not one right answer as to when to exit a trade. There are numerous reasons to exit a trade and they can vary greatly from one individual to the next.
The reason that exit points can vary greatly among traders is that they have different tolerances for risk. Some traders are very aggressive, and some are very conservative, and then you will have those that fall somewhere in between. You can be successful as an aggressive or conservative trader.
Some common reasons to exit trades would be due to levels of support or resistance that are met or are broken. Another common reason would be based off changes in trend. Relying on indicators or pending news can be reasons for exiting. Option trades will typically be exited based on a certain time frame as options approach expiration. Sometimes trader will base an exit off of a certain gain or loss. Even then, there can still be added decisions to make. What determines a trend change? What indicators are we relying on? Which levels of support or resistance are we using?
All of the previously listed possibilities are valid reasons to exit a trade. Our best results as a trader will be predetermining our exit before we ever enter the trade. Was the intent to ride the trend, or to reach a resistance level, or get out the day before earnings? Prior to any trade, we need to determine our exit based on our intent. We also need to have a contingency if the trade doesn’t work as planned. When we predetermine our exit, we are hopefully basing our decision on carefully thought out analysis. If we wait until we are already in the trade, then emotions of fear and/or greed can start to cloud our judgment.
No comments yet.