SEVEN WAYS TO SAY GOODBYE TO A TRADE

It is often said that entering a stock is easy, but knowing when to sell (or cover a short) is what separates the best traders from those who just scrape by. Any successful trader knows that having an exit strategy is the true key to consistent success in the markets. As with any decision in the market, it is easy to let emotions creep into the decision making process. If a trader allows feelings to become a factor in making decisions, he will find the emotional battle from within paralyzing at times. Some of the questions that will creep into our minds include, “Do I sell now and take a small loss, or do I buy more to average my price lower?” and “Should I sell for a small profit, or should I hold out for bigger gains?” These are just a few of the questions traders ask themselves when faced with a decision to close out a trade. Clearly these emotions are going to get in the way of making objective decisions, so we must have a disciplined and consistent plan of action that cuts losses at an early stage and allows our profits to run. This plan of action is based on the single most factor, price action. In reality, knowing when to exit a position can be an agonizing experience to the undisciplined trader, especially when trading larger share size.