When to Exit a Trade

By | February 18, 2013

For a successful trade to taken place the whole trading cycle ie. Analyzing -> Entering the Trade -> Exiting the Trade should happen flawless.When such trade are done over a prolonged period of time, consistency and profitability in trading comes.  Most of traders are very good in Analyzing and entering the trade but fails at the last step which is either booking profit or exiting when Stop loss gets triggered. In trading the money is not made in the entry, it is in the exit. The art of the exit is crucial to a traders success in the markets. Profits can disappear if you do not take them at the right time, small losses can become huge losses if you do not cut them. Small profits can become huge profits if you let them run until they truly stop. Keeping capital tied up in a trade going nowhere and just letting it sit there can cause you to miss out on other great opportunities.

 

 

How a trader can plan his Exit:

  • Use stop losses judiciously, Always do trades having Risk to Reward ratio of 1:1 or more than that.When your Stoploss gets triggered do not get emotional for the trade and look for the next trading opportunity.

 

  • Only risk 1% of your total trading capital on any one trade, when you have lost that 1%, get out. Position sizing, stop losses, and understanding volatility is key.

 

  • Enter trades right at break out points to new highs or off key price support levels or key moving average support levels. If it loses that support later and fails to retake it quickly then sell it. Read More at How to Do Swing trading

 

  • Buy Support and Sell Resistance is a trend less market, Do not be adventurous till breakout/breakdown  is confirmed on charts.

 

  • Use a ‘stale’ or ‘time’ stop.Set a time limit on how long you will give a trade to move a certain amount, if it fails to move enough fast enough, get out.

 

  • Volatility stop. The market or your stock has a big expansion in its daily price range or starts moving against you the full daily range. You either cut your position down in size or get out due to increased risk.

 

  • You trail a stop loss behind your winner, when it reverses and hits that stop you sell. A trailing stop can be a moving average or a percentage you your gain.

 

  • You sell your position because you have found a much better trade with a better probability of success or a bigger upside.

The key above all else is always to have a plan to get out of every trade before you get in. Before each trading day begins think about what you will do based on the price levels your open trade is at.

 

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One thought on “When to Exit a Trade

  1. rahul

    I have a request sir,
    Please write a article on how nifty is calculated or any other indices,
    Because when you see index its only 2-3% down but share including in is corrected lot more.
    So please explain formation of index and how big fund house like FII and DII try to manage it.
    Thanks in advance.

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