get out of that trade

When talking about trading, the conversations usually revolve around trading setups. After all, people want

to find the trading oppportunity, enter the trade and reap huge rewards.

In order to reap any reward when trading, there is one key element that gets over looked by many and that is

how are you going to take your trading profit.

That should be obvious but I have seen many times where people are in a trade and have no idea when or where they

should exit.

This poses dangers such as: a large loss

evaporating profits

Hopefully you are well versed on the topic of risk in trading as it pertains to your trading account. When you enter

a trade the possibility of it going against you is always there whether it is to retrace some of the profits or put

you in a negative position.

If you have not taken the time to learn about position sizing, the move against you that puts you in the negative can

be enough to trigger a margin call.

For me and so many other traders, the stop placement defines the position size.

Here’s an example using Forex as the

trading instrument.

Account Balance – $10000

Risk per trade – 1% Dollar risk per trade – $100

Now I know that whatever “setup” occurs, my maximum risk on any one trade is $100 which simply means: my

allowable loss is $100. My trading profit though is variable

and is dependent on the conditions of the market AND my exit strategy.

Let’s say that my setup is simply a pullback to support zone. This particular zone is 25

pips plus 5 pips wiggle room making 30 pips the stop on this trade.

I use this zone bottom because if it is

violated, my premise for the trade is not valid.

A quick calculation shows I can trade $3 per pip (3 mini lots) when placing

my stop in a location that would show me that the entry was a little early.

Now I have my setup and know exactly where I will exit to protect my trading account from taking a beating if I am

wrong.

POINT: A stop order sits in the market like a limit order however once triggered, it acts

like a market order where you get filled at the

best possible price which can mean slippage.

Forex is a market that is easy to dial in position sizing because of the various

lot sizes available at many brokers. Almost no trade is off limits due to stop size however you may want to consider what type of trade you are

taking.

As a rule of thumb, swing/position trading will have a smaller stop than a

scalping type of trading.

In my example I took an even more conservative position size (less than

1%) by only risking $90 because I rounded down.

If I am prepared to lose $90, should I not aim to make at least that amount

in a trade? How would I go about giving myself a chance to make at least

as much as I have risked?

This is where your “in profit” exit comes into play.This is where things

get a little tricky. I want to limit my loss so I have a hard target for an account

protecting exit.

BUT I want to make as much money as I can

on the trade. Does it make sense to have a hard target for profit taking?

Would I not be cutting a trade short?

Picture this You are riding a trade high and with

your initial risk of $90, your trade is up $270. Adverse news comes out and

your profit has dropped to $180. $90 has simply evaporated from your

screen

Your emotions take over and you sit on the trade waiting for the market to rise

again. But it keeps on dropping.

More people bail on their longs driving the price further against you and finally, you take the exit at +$90.

1. Wash. 2. Rinse.

3. Repeat.

This is the course many people take with their trading!

Ask yourself if you are able to be objective and exit your trade during an adverse reaction. Most can’t and that is where hard targets for your profits

come into play.

Targets may not always be hit but if you have an exit plan during the

negative parts of the trade, you can still gain a profit.

So if we agree we would like to make more than we will lose, what is the

best way to go about it?

Some will argue that scaling out takes the emotion of the equation because

you’ve banked some profits and lessened the remaining risk. You can then leave the trade running while trailing your stop for bigger gains.

Others will say that scaling out is pointless because a loss early on in the trade would usually be a full position

loss. Your profits though will not be on the full position size because you took

out partial.

They are both right and all the matters is what you are comfortable with and will do on a consistent basis. So how

do you exit?

In the next few posts and videos, I am going to cover some ways that you can

exit your trades. Hopefully this will help you from holding on long after all

signs pointed to an exit.

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