How Important An Exit Strategy Is For Traders & Investors

Okay!!! You are here means most likely you are a trader or an investor in financial markets.I have earlier also talked about the importance of Exit Strategy for a trader while discussing the Trading Plan.The purpose of taking the topic is to emphasize the importance of Exit Strategy in the markets.Do you believe that majority of the losses incurred to the traders and investors in the markets are due to lack of any defined Exit Strategy from the trade or the investment before going for the trade or investment?

Well,that is true.You may see that by yourself on any business channel or website where some market traders are asking for the future prospectus or targets for the concerned security in which they have a trading position or investment.Of course,asking for expert advice is not bad at all but you should always remember that it is your money which is at stake in the markets.

I see so many traders at some popular business websites where they just take the trading position in the market without having any idea of where to Exit the position in case the stock moves in favourable or unfavourable direction.So while they are busy in asking the help after taking position in the market,the markets either erode the major chunk of the profits or start piling up the losses.

This happens when you are trading just impulsively.Without any plan.And if you want to survive in the markets and earn profits, that should never be the case.Do you homework properly when markets are closed.Search the stocks which are good for trading by reading and analyzing the Technical Charts ( called as Technical Analysis ).Find your Entry Points and Exit Points for the trade.After that only,go for the trade when markets open.

Having an Exit Point or Exit Strategy is equally important to buying in long trades or short selling in short trades.The Exit Strategy helps you keep greed and fear out of your mind while in a trade.Greed and fear are the two major emotional factors contributing to losses.You can determine your Exit points by having specific target and stop losses for the trade by analysing the stock technically or by randomly fixing the profit amount you are satisfied with in a profit making trade or fixing the loss you are able to bear with in case of loss making trade.After that,you should not think twice before exiting.

Similar is the case with investments where you should have a clear Goal or Target for the investment and the Time Horizon for which you shall be keeping the investment.You need to keep monitoring your portfolio regularly and if the investment is not going the way you were expecting,you should look to Exit out of that investment.

Having a clear Exit Strategy brings the discipline in a trader or investor.It is always important to take out the profits at appropriate times.After all you are there in the markets to make money only.So taking profits is a decision equally important to entering a trade or investment.And that is possible with a defined Exit Strategy only.