Exiting a Trade

Having a good exit strategy is one of the important components of a profitable trade. Unfortunately due to the uncertainty of the stock market, traders may find themselves exiting by their stop loss after the price plummets, even though they started well in the trade. Beginners may also find themselves hesitant in sticking to their stop loss especially when they see sizeable return for their money. Market conditions can change pretty quickly, so deciding when to exit will determine your profitability.

Your exit strategy will depend on the indicators your are using while on a trade. Experienced traders have developed their own intuition on what they're supposed to exit and sell. But for beginners its tempting to let your money run. Test your exit your criteria and see if it will gain you any profit instead of just a way out.

On the other hand, the type of exit that you should avoid is having multiple contracts and scale out at various exits. Short term traders use this exit strategy frequently but they do not optimise nor guarantee profits. You will end up practising reverse position sizing.

When you ensure that you will have multiple positions when you take your biggest losses, you will also end up having a small position when you make your biggest profit. Work out your numbers and see what you will have with a full loss or a full profit. Look into your past trades and see if this will make a difference.

Your own instinct will play a part in the right time to exit, but its better to base it on facts and figures.