MY EXIT POINTS:
My most important concern is limiting losses. I care more about this than anything else in trading.
I mostly close a trade if;
- Stop loss point arrives
- Target profit has been reached,
- When my trade position is not clear
- The indication to close a trade may come from another stock or general market
So as a strict rule, I exit trades that don’t go my way immediately.
The trade must move in my favor after I enter 0therwise I get out as close to break-even as possible.
Generally, I must place stop loss, quite a distance away from key support/resistance area as they are natural barrier for bad trade acting as stop loss without any need to book losses, also it is worth to learn institutions hunt stop losses at Resistance or Support levels.
I rather do trade AFTER CONFIRMATION at point passed Resistance/Support levels.
I place stops at a point that, if it has reached, will reasonably indicate that the trade is wrong, not at a point determined by the maximum amount you are willing to lose.
However, in extreme cases, I may wait until my maximum stop loss point arrives.
a) Ending trades that show loss
I always remind myself, If I can’t take a small loss, sooner or later, I will eventually have to take the serious amount of losses .
You must not risk no more than you can afford to lose, and also risk enough so that a winning trade becomes meaningful.
- I *limit losses* with small trade size
- I minimize broker commission expense of trades by selecting trades only allowed in trading plan
If I never take large losses I will ensure to keep in business and small losses can always be covered by upcoming trades.
By keeping risk to 1% on each trade, it is unlikely to encounter a drawdown of 50% or more. However, if I choose 2% instead, there is a slight probability I may face a 50% drawdown.
I must fear that my loss may develop into a much bigger loss so generally (except breakouts), I keep trade size to 500-1000 shares as my entry, then I may add later subject to kind of opportunity and risk profile.
b) Realizing profit
Its most important to book profit regularly (target profit or earlier) as price and overall market index moves in up and down regularly and I must regularly close trade with profit captured so that I CAN TAKE New POSITION upon confirmation of new trend always and this way will never stuck due to paper profit being evaporated.
I will not take new position unless all previous shares have been squared up and no outstanding shares are left, in that stock.
IMPORTANT: In case I am in the last part of breakout that is its ending phase then I ensure not to quit or book profit at my target profit point but instead continue with last 500 shares , as long as a stock is acting right, it may grow into a very large profit. I must hope that my profit may become a big profit while trading breakouts, so I may scale up my position size to multiple of 1000 being added after regular intervals of 50 paisa until breakout ends completely. This provides an opportunity to maximize profit.