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So what are the ways to exit with a profit?
1. Being stopped out.
2. Exiting a position because the day session is about to end and you are a day trader.
3. Emergency situation that is going to take you away from the computer screen. And thus not allow you to watch the position.
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4. Have set profit targets before entering the trade and exit when these price levels are hit. Which in turn, can also lead to the possibility of entering a trade in the same direction as the previous trade once the initial profit is taken out.
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If price move against you, things are different. Do you really need to wait for your stop to be hit to know you are on the wrong side? If your initial stop is based on an area where if hit, all conditions (for your trade)would be changed, then waiting for the stop to be hit still makes little sense. Before it is hit, you know you may be right on direction but are wrong on timing. |
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Until my stop is hit, I am not wrong. I do need my stop to be taken out to show me that I am wrong. Until then, I have a great possibility of reaching profit.
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Why not get out, with the intention of re-entering when price starts moving in the direction of the initial trade? |
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This is a possible rule to follow when trading. I personally choose to just let my trade go and either prove me wrong - by hitting my stop - or prove me right - by taking my profit target out.
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A market moving sideways would be the same thing. The non-directional movement means you are wrong on timing, but could be right on direction. |
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I would rather get to the party 'early' than too late. Now, if you work under the assumption that your direction is correct, then why on Earth exit the trade? If you are correct, but early - why can't you just sit tight and give it some time?
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Another thing to consider is this: Capital tied up in a trade has an opportunity cost. Most people do not trade multiple tradable (although they should), and if you have capital tied up in a trade that is going nowhere, that is money that can not be put into a market that is moving. Trend followers need trend. Some market somewhere is always trending. If a trend follower has capital tied up in a trade that is not trending, he is missing out on the very thing that gives him is edge-trend |
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This is really just a function of the size of the account and the size of the current trade working. If you are trading e-mini's at $500 margins, you can trade 5 different markets on a $2500 account. If a person is over-leveraged in one trade, then something needs to be adjusted to the rules that are being followed. Now, I will aslo mention that trying to focus on too many markets for a newbie can be distracting and overwhelming. I personally trade 3-4 markets as I prefer to focus extensively on a small number of markets and understand how they move and react vs. trying to trade multiple futures, forex, options, and stocks.
Pivot - great discussion here. I hope others do not take offense to this discussion, but I hope we are providing a few sides of the story to the OP and others reading. Hopefully our experiences of trading can help some other traders thru the very difficult learning curve...