How Many Times Have You Exited a Position Early?

Do you have a problem with exiting your positions too early? I always have.  It’s one aspect of my trading that concerns me because I’m never sure if closing it early was the smart thing to do.  Let me give you an example which just happened to occur today.  I went long on the EUR/CAD before the European session open.  I went to bed and woke up to see the position up 80 pips.  I had a 100 pip stop loss and a 200 pip target.  I was a bit surprised to see it up this much so quickly.  I thought about it for a minute and decided to close the position and take the profit.  Why violate my pip target? Based on my experience with the ebb and flow of the currency market, I figured there was a good chance that the price will not continue in my direction and retrace, wiping out any profit I had. I’ve seen this happen so many times.   Today, this didn’t happen.  The EUR/CAD continued going up and would have easily hit my 200 pip profit target.  This frustrates me more than losing.  Here are a couple of ways I’ve handled a position that goes in my favor by a substantial amount:

  1. Close it out based on feel or maybe fear.  I’ll do this even if I have a target set on the position.  My rationale for closing it is that either I’m satisfied with the amount of profit or I’m fearful that if I don’t, the pair will turn against me and wipe out my profit.  
  2. Close a portion of my position based on feel or fear and leave the other portion open to run if the pair continues in my favor. From my experience, when I do this, more times than not, the remaining portion gets stopped out and I lose the profit.  Almost always, when I close a portion of my position for profit, I’ll set the stop to breakeven on the remaining portion so I won’t lose any money.
  3. It runs to completion and my target price is hit.  This almost always occurs when I don’t have time to monitor the position.   The target price usually gets hit very quickly.  I typically obtain my highest reward to risk in this scenario. 

In scenario #1, I feel good about the trade if I close it out and then it does exactly what I thought it would, turn against me.  I don’t feel so good if the pair continues in my favor after I’ve closed it and would have hit my target.

My feelings in scenario #2 and very similar to those in scenario #1.

In scenario #3, I feel great about the results of the trade.

So which is better, any of the three scenarios or flat out losing money on a trade? I think not losing money is best but the first two scenarios can sometimes lead to losing money.  If I’m not getting a decent reward/risk because I’m exiting a position too early, when I do hit that losing streak (trust me, it will happen), my losses could be much greater than my gains.  How many times have you closed a position early when it at a negative and not going in your favor? I can count the times on one hand. 

I’d love some feedback on what your experiences are and if you can relate to my possible problem.  It hasn’t affected my profit the last month and a half though.  I’m up over 13% this month alone but like I said, this could be short-lived if I don’t address this now.    


11 Responses to “How Many Times Have You Exited a Position Early?”

  1. Dan on February 20th, 2008 8:18 am

    I understand your frustration. I have read a lot of books on trading, as I\’m sure you have. Some things that I always try and keep in mind are; any gain is always better than a loss…..the market offers the pips, and you will never get all of them or as many as you would like, so take what the market offers and wait for the next opportunity. It is frustrating to see a trade go farther after your exit, but I try and step back and analyze the trade. You obviously made some good analysis to enter this trade, and you did exit with a good gain. I personally don\’t set targets, but I am always able to watch my trades until I exit. I use my indicators to exit, along with pivot points and S & R and other technical analysis. Many times I have had a substancial gain, only to have it retrace and take out my stop. So, now I move up my stop, and when it starts meeting what I believe to be resistance, if I am satisfied with the gain, I get out. One of the great things about trading forex is that there is always another move around the corner. Again, remember your analysis has been good, and 80 pips is a great trade.

  2. Forex Trader on February 20th, 2008 10:02 am

    The Generic advice is: never let a winner turn into a loser, and let your profits run.

    Doesn\’t this seem to contradict itself and be kind of stupid. I listened to Rob Bookers radio show yesterday in which he talks about a position he forgot was open last week. I thought this was pretty funny. But the moral of the story is whether you win or lose on an individual trade shouldn\’t matter as long as your risk is low. By the way I\’ve not made a dime in forex yet, So take it with a grain of salt.

  3. Forex Trader on February 21st, 2008 6:11 am

    I wouldn’t beat yourself up about it too much, I think we all do it sometimes. As long as you are making consistent profits overall, that’s the main thing.

    I exited too early this morning myself. I’ve been building up 4 short positions in the EUR/GBP at between 7560 and 7575 since Tuesday and closed them all at 7540 this morning, despite targeting 7500. (It’s now trading at 7525 btw).

    To be honest it was more out of boredom than anything because this pair is soooo slow and extremely tedious to sit there and watch. I remember now why I very rarely trade it.

  4. Forex Trader on February 21st, 2008 5:46 pm

    I struggled with this one myself for some time.

    My personal opinion on this is as a rule of thumb if you are trading discretionary, then use a variant of option 2 where you take profits on half your position and trail a stop up from the break even position on the remainder of the position.

    The danger with this is you can take your profits too soon and over the long run it can affect your equity curve. This is not mathematically optimal – it is more psychologically optimal.

    If you have done some serious back/forward testing and have a well defined system with precise rules then you can afford to use a more mathematically optimal approach based purely on sticking to your profit targets (no trailing stops) as you are likely to have the data about maximum favourable excursions (MFE) and maximum adverse excursion (MAE) to support it.

  5. Rich on February 23rd, 2008 1:38 am

    Thanks everyone for your comments. They were definitely helpful and I’m glad you can relate.

  6. Dent on March 15th, 2008 3:28 am

    You can also take part of your profit and then move your stops to slightly profitable. That way you’ll have more money when you wake up in the morning no matter what happens.

  7. Steven on August 27th, 2008 7:16 am

    In many ways a trade is like life. Most have a due date of when life will begin. No one can predict when it will end. Our job as traders is to end it without pain. Remember fear and greed rule the market. (and in life as well). I have spent many years struggling with this question. I have looked for the holy grail and found none. We must keep in mind, for the day trader, the forex market is random. There are infinite possibilities. I have, however found a few good indicators to tell me whether the move still has legs. Among others, Two are my favorites. The Aroon (close,10) and the PPO (close, 12,26,9) . Take a look at both and experiment with them. Learn about them. And good trading.

  8. Dean Gladle on September 23rd, 2008 7:14 am

    Hi Rich

    I forex trade toward a five year goal. I have a worst case target of 50 pips per month which I have to achieve in order to keep me on track towards this goal. 50 pips is a lowly and almost laughable target and it should be pretty easy to achieve but for me it is not that simple. I hold a day job but my strategy is structured such that I am able to still trade consistently. I have two energetic young children who demand my attention in competition with that sexy thing I like to call my wife.

    I have tried all three of the scenarios you mention and then some. None of them seemed to work in isolation. I eventually settled for a combination of letting my profits run and setting a take-profit target. After backtesting and live testing, I realised that the personlity of my instrument is such that, if it goes in my favour a few hours after I have entered, it does one of two things. It either makes great strides within a short span of time or it takes baby steps. When it makes great strides it usually continues doing so but sometimes with dangerous whipsaws. When it take baby steps, most of the time, it reverses not long thereafter.

    Naturally, I want to make a profit either way. I therefore voluntarily exit my position after a couple of giant steps.I do the same after a couple of baby steps. I have found that exiting voluntarily works out much more profitably compared to any other exit strategy I have employed. I sometimes miss the boat completely but until I find a better exit strategy, I shall stick to this one.

    All I can say Rich is that you must find your own fit. You can only find it by experimenting various scenarios.

    Good luck

    Dean Gladle

    P.S: My trading footprints and trade results since January 2008 are documented on the website provided. I do not detail my trading strategy just yet because it is still undergoing testing plus it is not the most profitable I have seen.

  9. The Geared Investor on October 21st, 2008 4:15 pm

    My strategy allows me to feel ok about getting out too early. Let’s remember here that while many people say ‘let the bulls run’, they probably aren’t talking about forex. The only time I see people successfully let their profits run is if they are going long with a sloppy entry, then they put in a huge stop loss and disregard large drawdowns. I’ve posted before about one in the bank being as good as two on the chart. I like to have a soft profit target in my mind that I will manually take if I don’t like how the trade is stalling. Learn to swallow your pride and take the pips.

  10. No easy route on December 25th, 2008 11:36 pm

    Classic rookie mistake.. Why did you even enter the trade if you didn’t have a plan?? Setup your trade parameters and leave them alone.

  11. forexbrokers on October 24th, 2010 11:13 am

    Happens all the time. It is a bummer, however I personally think it is better to exit early than too late 🙂

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