Saturday, October 25, 2008

Exiting losing trades fast

Exiting short term trades at the best possible time is always the goal if you are trying to catch the little up and downs of a stock. It is something everyone needs to work at and can greatly improve your profits.

The first step to always exiting your trades at the best possible time is to set targets. Setting target can give you an idea of where to exit a trade and also how much you expect to make. Remember these targets should be reasonable and based on technical indicators. Do not buy a stock at $5 and say ok my target is $300.

Chances are the stock will never reach that and if it does it will not be for 60 or 70 years. It is much more reasonable to enter a trade when it is at $5 and set a target for $7 in the near term.

In addition to targets every trade should have a stop to allow you to exit out of your losers quickly and with less pain. This should be the most you are willing to risk on the trade and should be decided before you trade.

NEVER, move a stop down. Sometimes it is tempting to move a stop down when a stock starts heading against you. This only leads to larger losses which can work against you in the long run. It is ok to move your stop higher as the stock goes higher but you should have a set amount you are willing to move it.

When setting a stop you need to let your stock have room to move. Don’t buy a stock at $50 and put a stop at $49.99 because you will sell it for a loss 99% of the time.

The last thing you should consider is exiting a no-performer early. Most short term traders will have some point where they just decide to exit a stock. If the stock has not been making the short term move you were expecting it for many days in a row it may be time to exit the trade early and find a better opportunity.

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