Options Trading: When To Exit A Trade
You’ve likely heard the saying, “Have an exit plan” right?
We all have, and it couldn’t be more true with one minor
change; for traders it should be “Have an early exit plan.”
The concept of taking winning trades off early is fairly new for most investors because you often hear “Let your winners run!” Yet the basis for exiting trades early is rooted in that doing so dramatically increases our win-rate. Plus, when looking at Probability of Touch on any trade we can expect that we will be at least given an opportunity to see a profit sometime during the trade’s lifespan.
This quick guide will give you a framework for setting automatic closing orders and/or alerts for exiting trades early. As always, you want to keep your trade size small so that you can afford to let each trade play out over time.
On risk defined trades you should let them go all the way to the week of expiration if needed. Undefined risk trades or naked trades, should be monitored more closing for profits as described below in the table.
The concept of taking winning trades off early is fairly new for most investors because you often hear “Let your winners run!” Yet the basis for exiting trades early is rooted in that doing so dramatically increases our win-rate. Plus, when looking at Probability of Touch on any trade we can expect that we will be at least given an opportunity to see a profit sometime during the trade’s lifespan.
This quick guide will give you a framework for setting automatic closing orders and/or alerts for exiting trades early. As always, you want to keep your trade size small so that you can afford to let each trade play out over time.
On risk defined trades you should let them go all the way to the week of expiration if needed. Undefined risk trades or naked trades, should be monitored more closing for profits as described below in the table.
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