False Sense Of Security May Cost You

A trader can be in a trade that goes down but is only a little against him. He has his stop on at a comfortable level but he knows the trade is wrong but stays in because the stop has not been hit. Since he has not been stopped out he holds on thinking it is a good trade. Since he has his stop set he thinks he is on the right side of the trade. This can be dangerous thinking.

When you are in a trade and it is not going the way you thought it should and you start to feel uncomfortable about the trade get out of the trade and forget about what you thought was a good trade in the beginning. Just because you have not been stopped out does not mean you are safe. You don’t need to wait to be stopped out take a smaller loss and get on with the next move. If the trade starts to look wrong then get out no matter if you are a little positive or a little negative. This can save you a lot of money in the long run.

If you placed a trade because of a market movement and some good signals but the market fails to follow through and starts to linger exit the trade. There is no need to wait until the market hits your stop level to get out. If it isn’t working as it should, odds are that eventually it will hit your stop so why not take the small loss now and look for another trade.

Exiting trades when the reason your entered the trade has changed is good money management. It is also a sign that you are maturing as a trader. You are in tune with the market and will probably make money on another trade that is just around the corner. If you can cut your losses by 25% you are way ahead when the good moves come along for a pip saved is a pip earned.