For many different reasons, lots of traders never plan their exit strategy. Do you know where are you going to close your position if you win? And if you lose? You should know this before you even consider taking a position in the market.
Having a good exit plan can be the difference between profit or loss. Many systems pretend to know the best time and place to enter the market, but are they clear about their exit points?
As long as you’re thinking about it, consider these 3 good reasons:
First off, You should limit your losses.
Think about this point, it is important. A stop-loss will help you protect your money if the market decides to go against you. If you wipe out your account you won’t be able to trade for another day. You should accept that occasional losses are part of the deal. Keep your emotions under control, don’t let the occasional set-back affect them. And never take a loss bigger than the one you planned in the first place.
Secondly, Where will you take your profits?
Do you have a preset profit target?
If you cash your profits too soon you may be living money on the table, if you cash them too late your gains will transform into losses. You need to plan your profit targets in advance. You could use a trailing stop as an exit strategy, and take your profits when the market changes direction; it is a good way to let your profits run.
And Third, Never deviate
You chose your stop-loss and profit-target for a reason, then follow your plan diligently. One of the main reasons most traders fail is lack on consistency in their executions. You can set your trades in advance and turn your computer off, trust your system. With time you will realize the advantages of this approach; it will help your trading results and your mindset. Trading stress-free is more profitable.
Trading can be a rewarding occupation. Anyone with determination and the right information can learn how to trade. The only thing you need is good mechanical system with positive expectancy, sound money management rules, and above all self-discipline.