trading isims for a trading career
DESCRIPTION
Setups (and triggers) are talked about quite a bit in forums and in personal conversations with traders. Rarely do I hear people talk about exits. Everyone has their own take but I believe it is the exits that are the most important part of a trade. How you manage exits will be the deciding factor on your potential for trading success.TRANSCRIPT
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Over the years you hear many trading ism's that many times are
hard to follow. Think of "riding the trend until it bends" and you will know what I mean.
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How many of you have been on the winning side of
huge moves only to exit and book the "gift" the market
gave you?
…but the move continues without you
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I know sometimes I have spent my paper winning before I have booked
them.
That was more of an issue starting out in trading until I quickly realized to
much dreaming can be costly.
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Now, it is simply dumping the money right back into the trading account.
Yes, things get easier as time goes on.
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Let's look at another "isim" that I am particularly fond of:
"Know where you will get
out before you get in."
Setups (and triggers) are talked about quite a bit in forums and in personal
conversations with traders.
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Rarely do I hear people talk about exits.
Everyone has their own take but I
believe it is the
exits that are the most important part of a trade.
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How you manage exits will be the deciding factor on your potential for
trading success.
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Without a defined exit, your loss will quickly become painful to your
account and on the flip side, how do you know when to stop giving back
profits?
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Ever been in a trade that was in profit and then seen it turn negative?
I have.
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Ever sat there hoping the price would return in your favor?
I have.
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Ever taken a much greater loss than you initially planned on?
I have.
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Ever jumped out of a trade because of the "profit itch" only to see bigger moves?
I have.
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Exits must be defined in your trade plan. The only way to define
your risk is to have a point where you will exit the trade.
Think of yourself as a risk manager.
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Let's take a simple Forex example.
$5000 trading account x 2% risk = $100 dollar risk on any trade
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If you know you can risk $100, you must know what the maximum
adverse price move can be before you hit that amount.
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Knowing your exit will allow you to understand how many contracts and
size of contract (micro, mini, standard) you can buy to limit your risk to your
defined risk tolerance.
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If you are the type of person who needs absolute control over every
detail (Control Freak), skip trading as a career choice.
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You must be able to accept the following if you have any hope of
achieving any level of trading success:
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You can control your entry.
You can control your exit.
You can control your risk via your exit.
Everything else is out of your hands.
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Once you have placed a trade, the market will do whatever it will do.
That, is a certainty. All you can do is define your exit strategy to either reap
the rewards or limit your risk.
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It does not have to be complicated.
Trail a moving average. Take profit at a zone of support/resistance. Exit when price patterns indicate a reversal
(higher highs and lows reverse). Exit partial at 1x your risk amount.
Exit when a momentum oscillator is showing a turn in interest.
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Far too many accounts have been wiped out because the owner did not
take exits seriously.
They gambled and they lost.
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Save that for Vegas but in trading, be a professional, act like a
professional and perhaps you will only need trading to support your
lifestyle in the near future.
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