Why should you have an exit strategy?
Successful traders know that their greatest enemy can be their own minds. Often, emotions and loss aversion can get in the way of making good trading decisions. That’s why it's so important that you have a plan for getting out of an investment. It's that's simple.
You should consider these questions before getting into a trade.
- How long do you intend to be in the investment?
- What will you be using to measure performance?
- How will you know when it’s time to get out?
Having an exit strategy is essential in managing your portfolio because it can help you take your profits and stop your losses. Exit strategies are important whether you’re an active trader or a passive investor.
4 common ways to build a sound exit strategy
So, you've done some research and decided you want to invest in a security. You've already figured out how much money you want to spend and the price you want to pay. Now it's time to think about your potential exit. Here are a few ways to plan your exit.
Using orders to set your exit strategy
There are many different methods for exiting an investment. Here are a few of the more common ones:
If you're not ready to place an actual order to plan your exit, at least consider setting a price trigger alert or making a note to document your strategy.
Planning your exit is one of the most critical parts of due diligence on an investment. A sound exit strategy can help you take profits, minimize your risk and control your emotions. And who doesn’t like taking profits