Why A Trade Exit Is Important

In whatever trade market you are on, your trading system should always contain rules or initiatives that would prevent you from further losing money, should the market is not working in your favor. One of these is a proper trade exit. This is part of risk management that you should take seriously or else you will continue to lose within your market.

Probably you have already set your system on how to spot a good trading opportunity and you have already set your maximum loss. What this means is you should know when it is time to exit a market when you are already losing some money. Because sometimes while you expect to lose money but also expect for the market to turn and finally become productive for you, sometimes the loss has started to gain too much that it should be reasonable to know when to stop the loss.

These exits are actually referred to as stops in trading lingo. And there are to types of these stops. The first one is the initial stop and then there is the trailing stop.

To define the first kind of stop, an initial stop is the point wherein you will exit a trade because you know that if you continue you will just also continue to loss in that market. If you want to have a different take at it, it also involves some humility on your part. Because you are admitting that you are on the losing end on that trade or market and that it is time to jump ship. This is why stops are necessary for your trade exit strategy.

The other one is called the trailing stop. It is set in almost the same way as an initial stop; based on indicators, percentages and technicals. A trailing stop is calculated from the highest price point when you entered a trade. What this means is that your exit point or stop is not on a fixed price as that of an initial stop. It actually changes or moves as the trade price changes. The Nicolas Darvas system teaches when or how to set up a stop so you do not make too much of a loss.

The hard part of this method is in balancing when you are raking in the profit before the trend finally stops. This balance also means you should know when you are already parting off too much of the profits because you are already on the losing end.

The one great thing when it comes to using trailing stops is it allows you to take full advantage of the market’s trend, at least long enough for you to take in as much profits as possible, even though the trend is really starting go down.

Every stock trading strategies would definitely teach you the importance of having these stops set early on. Before you even become active in a market or a trade, you must already predefined your stops so you can avoid losing too much from your activities. Otherwise when it is actually time to leave a market, you have no real idea on when is the best time to do so.

Just keep in mind that having a trade exit is a necessity for every trader, even for a legend like Nicolas Darvas. You should also understand that it is normal to every now and then for you to experience some losses. What sets good traders from bad traders is the capability to know when it is time to pull the stops.

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