One of the biggest struggles traders face daily is the temptation to exit trades too early. There are numerous reasons one might opt to close a trade too early, ranging from psychological factors to misinterpretation of technical indicators. More often than not, traders end up feeling the slap-in-the-face of regret when looking back at their trade history. If you, like many other traders out there, find it difficult to hold your trades open and exit trades before reaching your stop loss, this article is for you.
What are the most common types of trade exits that lead traders to regret their decision?
- Exiting a trade at break even due to the fear of loss.
- The inability to pyramid into positions, and exiting larger positions in fear that the market will reverse.
- Exiting for a small profit, over the fear that the market will reverse, only for it to reach your initial target profit.
- Exiting at a loss before the stop loss has been reached, only for it to become a winner later on.
So, what can you do to stop yourself from exiting trades too early? We’re taking a look at the main factors that influence traders’ decisions, so you can identify and overcome the obstacles preventing you from reaching your target!
Trading Mindset
Not being in the right state of mind is the first contributing factor to exiting trades at an early stage. This basically means that the reasoning behind going into trading in the first place, is to ‘get rich quick’, which, let’s face it, never really happens. Your behaviour is the result of your mindset, and it is essentially what makes or breaks you in the market. Slow and steady wins are what a trader should aim for.
Risking too much
Risking too much is another contributing factor. The most important thing one needs to do is get a feel of the market and how it works. Using high leverage can naturally make someone nervous when trying to keep open their positions, due to their profits and losses being magnified, therefore resulting in an early exit. The solution is reducing your risk per trade, allowing you to get less anxious over trades.
Poor Understanding of Market Realities
The most common reason traders exit trades too early is that they simply don’t know what they’re doing. Trading with real money before having developed an idea of what their overall trading approach is and how the market functions with regards to entries and exits can result in messing up the exits. It is important to learn how to trust the market when using Stop-Loss orders to automatically close trades when they reach a specified level, and start trading with the market instead of fighting for control!
Recency Bias
Recency bias is a fact in human psychology, where one is more influenced and affected by recent experiences rather than by older ones. This means that if one had a series of unsuccessful trades, he/she will then be much more cautious and nervous in their next trade, which will lead to a premature exit. It’s important to always focus on what is in front of you, and understand that the market cannot be forced.
With LonghornFX, you can practice trading over 160 assets with up to 1:500 leverage on a free demo account, or sign up to create a live account at longhornfx.com!
