How do I stop myself from exiting trades too early? – Life hack for Traders
Trading is a psychological game. It is difficult to enter and exit a trade without proper knowledge.
And also, it’s important to ALWAYS follow the rules. You risk running out of luck and losing your capital if you miss it even once.
As a result, entries and exits must be precise.
Early exits are one of the reasons most of us fail. We leave early or late due to our emotions. That is why it is critical to identify the reasons for early exits.
Let’s take a look at them.
Reasons for early exits
There are several reasons why traders may choose to make early exits in a trade:
To minimise losses
If a trade is not going as planned and the trader is losing money, they may decide to exit the trade early. This can help to safeguard their assets and prevent further losses.
To lock in profits
If a trade is performing well and the trader is profiting, the trader may decide to exit the trade early in order to lock in those profits. This can help to reduce the risk of the trade going against them and causing them to lose money.
To manage risk
Traders can better manage their risk by exiting a trade early and limiting potential losses or locking in profits. This can assist them in maintaining a healthy risk-to-reward ratio and safeguarding their capital.
To stick to a predetermined plan
Traders may have a predetermined plan for when to enter and exit trades. If the plan calls for an early exit, the trader may choose to adhere to it in order to remain disciplined and avoid making rash decisions.
To react to market conditions
Changes in market conditions, such as news events or economic data releases, may prompt traders to exit positions early in order to protect their positions or profit from market movements.
Overall, early exits in trading can be a useful tool for risk management, loss reduction, and profit locking.
However, traders must carefully consider their reasons for exiting early and ensure that they are consistent with their overall trading strategy.
Why do I take wrong exits?
Wrong trade exits are typically due to the following reasons:
You’re not sure about your trading strategy. If you understand the logic behind your strategy and are confident in your risk-reward ratio, you may not want to exit early.
We are not aware of our emotions. You are more likely to make irrational decisions when you are emotionally overwhelmed. You may leave early due to fear, carelessness, inattention, or other factors, only to come to regret it later.
You did not back test your strategy with a suitable risk-reward ratio. Strategy backtesting should include risk management because it will determine whether or not the strategy is profitable.
How can I stop early exit ?
Early exits in trading can be disastrous. They can result in losses, as well as market volatility and even market crashes. Here are four trading tips to help you avoid premature exits:
1. Make sure you are fully informed before you make any decisions.
Make sure you have a thorough understanding of the situation before making any decisions about whether or not to leave early.
Make certain that you understand the risks involved and that you have a clear plan in place for dealing with those risks.
2. Use stop & limit orders to protect your investments.
Use stop and limit orders to protect your investments if you intend to exit early.
3. Use GTT orders
Use orders such as GTT (good till triggered), which allow you to place both a stop loss and a target at the same time and then exit. This can keep you from leaving too soon due to emotions.
Make sure your strategy has been thoroughly tested, because if you are not confident in your strategy, you are likely to exit early whenever there is a minor pullback.
5. Risk management
Risk management should be implemented because it is pointless to exit if you are not profitable at the end of the month. So, always maintain a risk-reward ratio of at least 1:2. Exiting too soon may result in many small wins and huge losses. Simply assess the risk-reward ratio, set the price, place the GTT order, and walk away.
6. Emotional management
The majority of early exits are caused by emotions such as fear. So try to practise mind techniques such as breathing exercises, meditation, journaling, and so on. These techniques will help you to calm your mind, control your emotions, and see the big picture logically.
7. Walk away
Simply using GTT or algo trading to place automated orders may reduce your screen time. So you can walk away without having to worry about placing an order.
8. Moving averages
If you are having difficulty identifying proper exits, you can use moving averages such as the 20 EMA to run your profits. You can exit the trade when it crosses the 20 EMA in the opposite direction.
9. Trailing stop loss
A trailing stop loss is another type of automated order in which your stop loss is moved in your favour when the price moves in your favour. This will help you run your business and reduce your screen time.
Recognize the market’s reality. Prior to continuing the trend, price always gives a pullback. As a result, emotional exits should be avoided.