5 Ways To Exit Your Trade
1. Initial stop-loss hit and exit.
I’m assuming that you always have an initial stop-loss order. If you don’t, then do.
In this case, your initial stop-loss is hit and you suffer a loss. Although it is the worst possible outcome for your trade, be glad, as you have followed your rules with the discipline required for trading success.
2. Target price hit and exit.
Again, I’m assuming that you have a target price with a limit order set to bank your profits. It’s fine if do not as you want to let your profits run.
However, most traders don’t feel that great having their targets hit. Why? Because their targets were hit, meant that they could have set it higher. (Except in situations when the price hits your target to the exact tick. Just how likely is that.)
3. Time stop hit and exit.
Some traders have a time stop, because time is money. Having your capital tied up in a sluggish position while missing many other great opportunities is hardly ideal. If your trade is not going anywhere within a certain time period, exit at the market and look for other opportunities. How long do we wait before exiting? Observe all your trades to find out. Most of the best trades move quickly towards your favour.
4. Trailing stop hit and exit.
Some people prefer to lock-in profits when possible. For them, trailing stops are their best tool. Trailing stops are stop orders moved in your favor to lock-in profits. There are 1001 methods to trail your stops but the principle is the same: to balance between locking in profits versus suffocating the trade to a premature death.
5. Conditions have changed, exit at market.
We enter each trade with a reason. (At least, I hope you do.) If that reason is no longer valid, we should simply exit at the market price.
For instance, we entered a trade based on the Holy Grail which finds opportunities in strong trends. Then we saw that prices were moving sideways for a prolonged period. The strong trend we wanted to capitalise on is obviously missing and so we should exit.
This is the most logical way to exit a trade, but the most subjective. A trader must understand his edge extremely well to use this exit strategy. Most new traders are too excited when they are in a trade, with eyes glued to the P/L movements, to reassess their edge constantly.
Regardless which method appeals to you, you must have an exit plan in mind before entering any trade.
SOURCE:INTERNET