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    Wednesday, August 27, 2008

    The only 3 reasons to exit a trade

    In my ongoing effort to demystify successful trading, I thought I'd share how I know to exit a trade, whether it's a winner or loser. As always, I'll keep it plain and simple:

    1) The instrument gets to your defined profit level, if you have a specific target. If no specific level, then exit when your studies (ie. MACD crossover, Fibonnaci, etc.) complete their signal.

    2) The instrument hits your pre-defined stop out level. That's right, it must be determined ahead of time, and honored if it gets there!

    3) The reason the trader took the trade is no longer valid. I don't usually trade a news event, but if I were betting on a certain outcome in the election, for example, and the results were not what I expected, the trade is no longer valid. Likewise, if Gold should rise because of recent action in the $USD, but instead it drifts lower, the trade could be broken. In this case I'd exit and wait for another great risk/reward signal. There is always another trade.

    It really is simple. Naturally, I break my rules occasionally, but the key is to identify when you're getting off track as quickly as possible. Review your strengths and weaknesses in your own trading. Pat yourself on the back for what you do well, but commit to progress on specific shortcomings. Eventually you'll be comfortable (and profitable) trading any asset class, in any market around the world.

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