Exiting a trade is as important as entering it

FXhunter

Junior member
23 1
Does it happen to you that you are in an open trade and the price is oscillating near your entry point and you think that the price is changing the direction? And as far as you close the trade the price continues to go in your direction?

Exiting the trade prematurely
This means that you have an opinion about were the price is going, you think it’s going in the opposite direction, don’t you? This is the same as having an opinion on the entry point. Successful traders, especially trading teachers say that trading based on your opinion will lead you to losing money. And when a trader loses money trading based on his opinion he starts trading someone’s trading method or system. Maybe you have managed to train yourself not to open a trade impulsively, but you didn’t realize that exiting a trade is as important as entering it. So if you want to become a consistent winning trader, you have to follow all your rules, not just a part of them.

My personal experience
When I first started trading, I was opening and closing the trades without any trading plan. I didn’t have a trading strategy. Later I’ve learned about the entry strategies, because all the authors of the books were talking only about the entry, very few were talking about exiting a trade. After a while I’ve learned that I should put the stop, but I was actually placing it where I was feeling comfortable with it. It took me a while to learn where to place the stop, but I’m still having troubles exiting my trades at the profit targets, because I close them before they reach it.

Saying “With the next trade I’ll follow my rules”
When you see that your trade hasn’t achieved the profit target yet, but only a half of it you may say “I’ll take this profit and the next time I will wait for the profit target to be reached”

On the next trade you may even have the self-control to wait until it reaches the profit target but it arrives near the profit target and then turns back and stops you out. You will be blaming and asking yourself why you didn’t close it when it looked like that the price was changing direction. Doing this may cause disastrous consequences. You’ll not get the expected results, or you can even lose the money in your trading account. But even worse, you’ll enforce your bias that you should exit the trade when you think the price is changing direction, but remember that you can’t predict the market. This behavior might be very difficult to correct.

Treating entry strategy as something magical
Traders think that there is something magical about the entry strategy, but closing a trade is as important as the entering the trade.

Let’s assume you’re in a trade, your profit target is 10 ticks and the price is just 4 pips from your target, you decide to close it because you believe that the price is changing direction.
Let’s assume that you have a signal to enter the market and the price is just four ticks away from the entry.

Will you enter the market 4 ticks below your entry, anticipating that the price will go in the direction you think? Most of the traders will not, unless they are completely new to trading. So we should treat our exit points as the entry points. We should follow our trading plan.

What we tend to do when we buy a trading system? We tend to take in consideration only the entry strategy but not the exit strategy. We think about the entry strategy as of something magical, as about something that no one had already seen before. We think that we can take an arbitrary stop loss and an arbitrary target for taking profits and we will succeed. Sometimes the trading systems have a stop loss that we can’t afford we just use the stop that feats us, and maybe we try to use the large profit target that was set by the trading system. If you do so, at least test it, because otherwise you’ll pay for the testing with the money from your trading account.

Solutions
There are more solutions to this problem. You can reward yourself if you manage to follow your rules for a certain number of trades. Or you can punish yourself if you don’t succeed to follow your rules. You have to be sincere with yourself.

When I told the master trader I’ve taken the private tutoring with, that I have this kind of problem he said that I should punish myself by not trading for one week if I don’t manage to follow my rules. Although it may be good in some situations I preferred other kind of punishment. I agreed with my workmate that I would offer him the coffee for a week if I’ll break my rules. After offering him the coffee for the entire week, the next week I started to follow my rules.
 

FXhunter

Junior member
23 1

What exactly made you laugh? The part with offering a coffee :) or the entire article?

Anyway, another solution may be to trade on a demo account, but personally I don’t have the discipline to trade on the demo account. I usually forget to look at the charts or I take the setups I wouldn’t take if I traded the real account. At least when I’m trading the demo account I don’t close the trade before it reaches the targets. :)
Yet another solution may be to minimize the chart once the stop loss and the profit targets are set. Just restore it only for managing the trade, for example adjusting the stop loss. This method works for me, when I trade based on the daily charts. Once I put the orders I reopen the charts the next evening and the trade is usually already closed. I haven't tried it yet when I day trade, because my trading platform doesn't allow me to put OCO orders.
 

NVP

Legendary member
37,588 2,011
my only other point is that aside from scalping .........

my systems have generally dynamic Exit targets

if market conditions change around the trade I rapidly adjust expectations .........

N
 

FXhunter

Junior member
23 1
10,000 hours will help most people.......practice practice practice

this is a good thread as Exit is much more important than entry - heres a thread with similar thoughts ......

http://www.trade2win.com/boards/forex/117416-best-exit-strategies-forex-market.html

N
I completely agree with you. 10,000 hours will for sure help most people. Indeed the more I test the setups I use, the more I get the feeling of the market.

I've seen the thread. It's a good thread, it seems to me that it's more about the strategy. Thank you for the link.

Here I was trying to describe the discipline problems. By the way... regarding the time spent with the charts, analyzing the trades I made also helped me. Because I did the math and realized that if I took the profits at the profit target I could make the twice the amount I made.
 

dazfletch

Newbie
7 0
Good post fxhunter all newbies should read this instead of going gun ho into trading. I also believe that exiting is more important than entry. In my experience most people do the 80/20 rule with 80% devoted to entry and 20% to exit yet in my experience I have found that the points total you achieve rely 80% of the time on where you exit.
 

FXhunter

Junior member
23 1
Thank you dazfletch. You are right, the newbies should read this. But I understand them perfectly because when I was a newbie I was searching only for the perfect entries. I was thinking that once filled the price should go only in my direction. Unfortunately it took me a lot of time to understand that the exits are as important as the entries.
 

NVP

Legendary member
37,588 2,011
I also agree with you re "feeling the market"........I spend 95%+ of my time just watching the markets .......physical trading is a very small part of the time

If beginners spent more time on theory of markets and also using systems that allowed them to understand market dynamics (in all conditions) then they would be more prepared for what comes at them when trading........most moves are not surprises if you can see the bigger picture

N
 

BeginnerJoe

Senior member
3,329 350
Exiting is completely unimportant relative to the importance of entry. I can prove it by making anyone rich beyond their wildest dreams if they give me a high probability entry method. I will need nothing else from them and they can keep the secrets of the rest of their technique. So, you have nothing to lose to take on my offer.
 

barjon

Legendary member
10,617 1,755
Exiting is completely unimportant relative to the importance of entry. I can prove it by making anyone rich beyond their wildest dreams if they give me a high probability entry method. I will need nothing else from them and they can keep the secrets of the rest of their technique. So, you have nothing to lose to take on my offer.

High probability of what, BJ? It's one of those phrases happily bandied around that's pretty meaningless.
 

BeginnerJoe

Senior member
3,329 350
High probability of what, BJ? It's one of those phrases happily bandied around that's pretty meaningless.

Hight probability of entering into making 10 pips with drawdown of 5 pips. Say 75%+ probability. Even 60% could be interesting.

Of course if you know Mr Chart's secret sauce of high momentum trading, that would be even better. In that case, a 5 pip profit potential with 0 pip draw down beyond the spread would be excellent.
 
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BeginnerJoe

Senior member
3,329 350
:) If you find one, pass it on!!

Now you got me curious. What is your definition high probability entry ?

Anyway, my numbers are pulled out from thin air. I am willing to be accommodating, if you have something interesting. Say 1:1 rr, with 51% chance.

In my book, as soon as the correct entry is made, most of the work is done. Exit is close to irrelevant in that it can't kill you, or at least it shouldn't.
 
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Billy Gates

Active member
161 14
Exits are more important from a psychological and MM perspective. Entires are not always perfect but if you can exit smartly then you can cut back on your losses. What I have myself have in the past is entered a trade which has gone into profit, and by not having a clear exit turned that into a bigger loss. Also when I have made a bad entry I have waited for the market to turn because losses were getting unacceptable.

Now I understand better. I don't quite have what BJ said a 10 pip move with a 5 pip drawdown, because that differs under different market conditions. I can enter a trade and the drawdown can be around 15 pips. The moves can vary depending on when the entry is made. Some have been 20-30 pips and other I have held on for longer as the trend continues.

In all the moves the key is the exit. Whether it is a wrong move, too early or even a longer trend. The exit is the part that will give me the confidence to trade.

It's like driving a car. If you don't know how to use the brakes are you will continue to spiral out of control. If you do then you decide when it is getting too dangerous for you to handle.
 
 
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