Learn the right way to exit a losing trade to minimize your potential losses. The Right Way to Exit a Losing Trade will show you the secrets that successful market research analyst use to get the best possible exits when trading. In a volatile market, it is imperative that you know how and when to exit a losing trade.
If you do not know the right way to do this, you will very quickly find yourself losing more money than you started with. There are many ways to exit a losing trade, but only one right way. Using your own rules like intraday calls for today and discipline to choose the right way will lead you to avoid emotional distress, while you’re in a trade that goes against you.
Use stops to restrict your financial losses
A stock market is a vicious place full of volatility, uncertainty, and risk. No one wants to lose money on a flip of the coin, but it happens more often than not in trading. If you’re going to trade and try to win, then you need to use stops on stop-loss orders to restrict your downside and protect your capital — many don’t know about this secret weapon for traders.
Most traders know they can use the stop-loss function to set an automatic level of protection for their trades. However, many traders rely on the stop-loss exclusively during a trade and never move it. They leave part of their position in financial jeopardy because if market conditions change radically — which is inevitable — then the trader might need to move the stop-loss. Therefore, you have to be careful about when you move your stop-loss, and how much you’re willing to risk and use it in conjunction with other technical analysis tools.
Keep a check on the stock even after exiting to find a re-entry point
There is a raging debate amongst traders on when to finally exit a stock that you have been trading. Some traders only exit the trade once their pre-determined target has been hit and make no attempt to monitor the stock for a re-entry point.
Other traders will monitor the price action and look for any signs of an upcoming bounce before taking off half their current position in an attempt to capture more profits without putting in additional risk. Still, yet, other traders will take off half of their position, but continue to hold onto their remaining position, for no reason other than to collect “free” profits — which is nothing more than greed, at best.
A quick exit is only good if you are being stopped out of the trade. If you don’t check the stock after your exit and still believe there is an opportunity to make a profit, you could find yourself making a costly mistake. An extra few minutes can save you from missing potential gains.
Trading is hard enough as it is, but if you’re not careful there will be times when you get out at the wrong time. You will end up leaving a big chunk of potential profits on the table. There are ways to ensure that you don’t fall into this trading trap and even take advantage of it by finding new ways to profit from it. You can also take guidance from a value research stock advisor.
Do not emotionally connect with your stock picks
As a stock trader, you know how it feels to be in hot pursuit of a big gain. You’ve found an up-and-coming company whose prospects and operations excite you, and you’ve made the trade. Your heart is almost in your mouth as the tape tells the story of a rising market.
You’re one of the lucky ones who was able to get into the action at its entrance; now all you need to do is coast along with it as far as it will take you. But if you’re truly alert, something inside you tells you that this isn’t going to be a cakewalk.
Do not emotionally connect with your stock picks or the share price of any company. The only connection you should have with stocks is based on pertinent facts about the business itself. Whenever a stock we’ve allocated capital into moves against us and we need to lock in our losses, it is usually an uncomfortable feeling.
Nobody likes to admit that they were wrong when objectively that entirely could be the case. The stocks we invest in can be mirrors of our own experiences. Trading stocks are often the manifestation of our hopes, desires, and aspirations. However, don’t make the mistake of connecting yourself to your stocks. Emotions will only cloud your judgment and will make it difficult for you to exit losing trades quickly and easily as they intensify.
Accept responsibility and analyze your mistakes
Everybody makes mistakes. Nevertheless, in your quest to become a better trader, what happens when you make a mistake? Do you blame it on bad luck? Do you justify it by saying “I was only half-wrong” or do you simply move on, accept responsibility for your actions and use the experience to guide future decisions? I say take responsibility and at least try to learn from the past.
Accept responsibility and analyze your mistakes. This might not be the easiest thing to hear if you’re trying to hide what you’ve done wrong. However, this is really the only way to improve your trading. Take a step back and bask in the glory of your success. Learn from your losses. Both successes and failures are stepping-stones toward becoming a better trader over time. Accept responsibility for your losing trades, learn from them, and move forward with a mindset that will allow you to be successful in the future.
Find out where your investment plan can be
When it comes to trading, your performance is a product of a lot of things. Some of those things are related to the market, and some are related to you. You can improve your trading by finding out where your investment plan can be improved. To do this, you need to ask yourself some different questions. Many traders get it wrong when exiting losing trades. They try to be average and let their losers run. They’re only looking to minimize losses and hope the losing trade will eventually come good.
The length of time that you stay in trade is important. Many traders do not bother to look at the timeline of their trades and as a result, they may never know where their investments can be. We have to go through the whole process of researching and reviewing our investment plan before we start trading so that we know how long we should be investing in assets.
If you are having trouble exiting a losing trade, it’s likely due to your current investment strategy. You see, in order to properly exit a trade, we need to have established a target goal or sell point in advance. In addition, there is one right way to do that in order to ensure your investment plan doesn’t come crumbling down.
To summarize this article, here’s the right way to exit a losing trade. First, determine whether you should cut your losses at all. If you do not care about seeing your profits being eroded by the movement of the market, there is no need to exit a losing trade. However, it is important to factor in your psychological profile.
If you’re an aggressive trader who can handle a drawdown, it may be worthwhile to take advantage of “double bottoms or tops” or other exploitable patterns arising in the market. However, if you are more conservative and find yourself regularly entering on news releases or price spikes, checking your losses early may be a wise choice.