Exits Should Be Easy
After 40 years of coaching and mentoring retail advisors and individual traders one fact has proven to be true. Retail finds it easier to enter a trade than to exit while professionals execute each exactly the same. This single difference between professionals and retail is probably the number one cause for the significant performance gap that professionals achieve over that of the retail markets.
Everyone knows how to enter a trade, for many its whenever they have money. But do you understand how to exit? Professionals know that all entries rely upon a set of rules, in place before the trade. When the context, condition, and probabilities are in favour, the entry is automatic. Retail investors rarely have specific entry rules. They may not assess the condition and context of the market. And have little understanding of the probabilities of the trade.
Too often a trade occurs when money is available. This means that most of the time they’re either entering the trade too early or too late. Too early and it has no momentum necessary for a profitable trade. Too late and a vast amount of the momentum is already occurred and a correction or pull back is at hand. Both mean your assets tend to under perform before ever having profits appear.
We discussed in an earlier posts, here, here, and here the proper way to enter a trade. So I won’t take time now to reiterate it. We will focus on why exiting a trade is nothing more than the reverse of the entry.
Because retail do not have specific rules in place, like professionals, they don’t really know when these rules have been broken and therefore stay in a trade too long or exit too early. The first creating great losses, the latter, missed opportunity.
You enter a trade when the context and probability favour your trade. When that is no longer true you should exit. It was support and resistance that made the entry viable. When that is no longer the case then an exit is the only alternative.
As all professionals know the exit is always more important than the entry. A good professional can take any random entry and turn it into a profitable trade. But a misplaced exit can wipe out all the previous profits.
Remember losses have a greater negative impact than profits have a positive benefit.
The same rule-based process that allowed you to enter a trade, also allows you to exit. So, you maximise the profit potential. You reduce or remove the risk of drawdown. And you create greater continuity and consistency in the portfolio.
Over the next few weeks will look at each of the rule-based steps to enter and see how they reverse when exiting.
If you want to learn how to make your exits as easy as your entries and more I have two resources for you:
- Online Course: Trade Like A Pro (TLAP) course. Learn to trade like a Professional at your own pace. Read the testimonials here.
- Group Coaching: Join the Mastermind Group and get the TLAP course for free.
Be well and trade like a pro,
Lloyd
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