Traders and investors often face two major challenges. that they Exit their letter Too early and loses its upside. Other times, they Catch their profitable deals longer and incur a loss when the trend reverses.
In this article, we will look at some of the top tips to use to hold your trades for longer to maximize your profits.
Strategies for opening profitable trades
Traders use several strategies to open profitable trades. We’ve covered most of these strategies before.
Some of the best ways to use it are:
- Follow trend – This is a strategy where traders seek to open positions in an already formed trend. In this case, the person makes a buy trade when an asset is rising and sells when it goes down.
- Reflection pattern – This is similar to a trend-following strategy. The only difference is that the merchant It aims to open when a new trend is about to start. Some of the top reversal patterns to use are the doji, the head and shoulders, and the rising wedge.
- News Trading Strategy This strategy involves buying or selling short when there is major breaking news such as earnings, mergers and acquisitions.
- scalping trading strategy This is an approach that involves buying and selling stocks with a very short-term horizon.
- Pre-market trading – This is a strategy that involves trading stocks in the pre-market session and shortly after they open.
Why do traders close profitable trades early
The common mistake many traders make is that they They close their trades too early. For example, suppose you open a buy position at $10 and aim to exit at $15. In this case, the trader can Put Take Profit at age 15 and then wait for that to happen.
However, in most cases, some traders close the position when it rises to around $12. In this case, if the chart goes up to $15, the trader will avoid taking $3 per share. As such, in most cases, Traders tend to regret the deals they exit early.
It’s all about psychology!
There are several reasons why traders exit their trades too soon. First, there constant fear This is profitable Trade will be reversed and becomes unprofitable. In most cases, this happens to traders who lost their money after their trades became profitable.
Second, there is a file psychological side In this. In many cases, traders decide to exit with a small profit because they think it is a better option than losing.
RelatedThe most common psychological trading mistakes
Third, there is the concept of modernity bias. a novelty bias It is a condition in which a trader is affected by recent trades.
If their previous trade was losing, they will assume that the next trade will also be unprofitable. This is more common if they make many losing trades in a row.
Fourth, traders exit their trades too early Because of their trading mentality. In most cases, when you are not in the right mindset, this will increase the chances of opening your trades prematurely.
RelatedThe differences between successful and unsuccessful traders
How to avoid early exit from a trade
There are several strategies to use to avoid exiting your trades too early, including:
Get a Trailing Stop Loss and Take Profit order
The easiest strategy to use to avoid exiting your trades too early is to have a graduated stop loss and take profit. Trailing stop loss is A flexible tool This will automatically stop your trade when it drops by a certain point.
Usually a trailing stop loss Different from fixed stop loss Because. With a fixed stop loss, it is easy to eliminate a profitable trade if there is a reversal. On the other hand, trailing stop losses usually attract profits.
Therefore, all your trades must have a Stop Loss and Take Profit order and you must adhere to it.
You have a trading diary
A trading diary is a piece of paper or an electronic document where you write down everything about your trades.
Enter details such as entry and exit prices, the reason You start a trade, and your goals are to profit. You should spend a lot of time coming up with a magazine that has real profit goals.
Another strategy that will help you keep your winners for longer is Perform multi-timeframe analysis. This is a strategy that involves looking at different time frames of the chart Finding support and resistance levels in the graph.
With good analysis, you will be able to determine the best levels to set Take Profit and Stop Loss. Once you do this, Make sure to keep it we will.
Technical indicators can help
in some cases, good technical indicators It can help you avoid exiting trades prematurely. Some of the most popular indicators that will help you in trading are moving averages and oscillators Like the Relative Strength Index (RSI) and the Stochastic Oscillator.
With moving averages, you can identify an exit when the short and long term averages cross. On the other hand, using oscillators such as the RSI and Stochastic Oscillators, you can identify exit levels when you move to overbought and oversold levels.
In this article, we looked at Why exiting a trade early can be a bit dangerous. We’ve also looked at some of the best strategies for avoiding this.
It all boils down to your mindset and making plans around your trades. Having a good stop loss and take profit order will make it possible to avoid leaving a lot of money on the table.
Useful external resources
- Is it a good idea to book profits and roll stocks or to hold them for the long term? – kora