When Do You Get Out of a Trade?

      There are numerous reasons to get into a trade: various indicators, support and resistance, moving averages, directional trends and hi/low breakouts, just to name a few. So now that you are in the trade, when do you get out?

      You should always have a theory for the trade. The goal is to make 10 ticks, 30 ticks, 2 ticks, etc. But how much could you lose? Your location of where your stop would be versus where you think the market will go is a good tip of whether the trade is worth taking. If you think the trade is worth 10 ticks but could go against you 15 ticks, is it really worth it? Why risk more than you could make?

      When entering a position a trader should always have an exit strategy. Most new traders don’t have an issue working targets, that part of the trade is easy. The hard part is knowing the answer to this question: when do you cut your losses? At some point, when a trade is against you, you have to admit that the theory of the trade was wrong and that it is time to get out. There is no conspiracy against you, no one is waiting for you to get in and the market is never wrong.

      When you get in a position you have to protect yourself and your investment in the trade. You have to know, before you get in that when the market goes against you X ticks or hits a certain price you know that the trade isn’t going to work and you have to check your ego and get out.

      Knowing when to cut your losses is undoubtedly the biggest difference between traders that are successful and those that are not.

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