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Nailing Better Trade Exits

Do you realize that almost no matter where you exit a trade, you are going to feel bad? If the trade is a winner, you wonder if you could have gotten more out of it or why you gave back part of what you had. It’s like a winner is ironically a no-win situation. On the other hand, if it’s a loser you wonder why you didn’t get out sooner or if you should have stayed a bit longer to recoup some of your losses.

Subliminally, you always know this. And given that we naturally shy away from feeling bad, we as traders naturally shy away from fully understanding the landscape of trade exits. We continue to try to revert to the chart. We make resolutions. But we fail.

Facing the problem head-on can improve our results.

First, realize the challenge is the relentless uncertainty of the situation. Anything can happen and whatever does happen can be reversed (and reversed again) in the blink of an eye.

Compare it to ball sports. In football, basketball, tennis, baseball and soccer, you know where the ball is and where it needs to go. You know your job is to move the ball or prevent your opponent from doing so. In trading, you sort of know where the ball is and you sort of know where you want it to go. Why do I say sort of? Well because in trading you have to play offense and defense at the same time. You have to move it forward and stop it from going backward – all while you have no control over it!

This turns the question into one of how do you create an environment for yourself wherein the worst you will do is a respectable job? For example, handling a market-misread can still be respectable. If you don’t get caught in a need to be right or even in embarrassment, you can recover from a near-fall and make it to the bottom of the hill intact.

The problem with that is that most traders won’t even admit that needing to be right or potential embarrassment is coloring their chart or probability read. And it’s that lack of admission (or misunderstanding) of how our feelings interact with our thoughts that makes this job – and the exit – much harder.

Did you know that research shows that upon considering a probability, the very first event that happens in your brain is that it projects a future feeling?

Accepting that a whole host of feelings occur in the prospect of exiting a trade helps your ability to act on the intuitive or integral feelings that give you market information. It’s also the totally ironic clue to setting aside the impulsive or irrelevant ones that damage your exit behavior.

Try this sequence –

1. Am I on offense or defense? What does that mean for a respectable exit?

2. What do I want out of this trade right now? For it to move ______?

3. Am I acting out of a fear of missing out on a further move in my direction?

4. If I get out here, how will I feel in an hour? If I do not get out here, how will I feel in 15 minutes?

Answering these questions makes your true psychological arena part of your conscious data set. It’s only when the feelings are conscious that they do NOT control your behavior. Becoming aware, through questions like the above, gives you much more control over how you exit. Research shows that verbalizing feelings interrupts the inability to do what we want.

Do you, like many, repeatedly beat yourself up for your exits? The answer to grabbing more good exits lies in “charting” your mental state. Parsing your feelings makes exits easier! There’s metaphorical gold in them thar hills! Yes I know it goes against conventional wisdom but the world isn’t flat and apparently, a low fat diet doesn’t prevent – and may even cause – heart disease.

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