Most traders have been in that one monster, parabolic trade where they made a killing. The problem is the exit. It is important to always be wary and plan a trailing stop to get out of your huge winners. So many investors and traders just get lucky, get in the right trade at the right time, and catch a monster trend. Their patience to hold pays off by catching a full move in their favor by letting their winner run. Unfortunately, this patience is a liability if they also hold all the way back down, coughing up big profits. One part of the exit is a well-placed trailing stop under a near term support price, or moving average. Additionally, you can use the psychology of the market as an indicator that it is time to look for a profitable exit.
10 Signs Your Big Winning Trade Is About To Go Bad and it is time to look for the exit.
- If they put the ticker symbol, currency, commodity, or index that you are trading as a live permanent quote on CNBC, the end of the trend is near.
- If a bull or bear is on the cover of a major national magazine, that market is very close to ending.
- If you are on the side of the vast majority of traders, and people against you are vilified, then the trend is almost over.
- If you have made a substantial amount of money, but your winning trade makes you start dreaming of what big purchase you can make with the next move in your favor, you are in trouble.
- When the traders around you start talking about a new paradigm and why this trade just can’t lose, watch out!
- When new traders enter your trade and make quick and easy money, then scoff at “risk management” because it is not needed, the end is getting closer.
- The day your trade gaps up in your favor and moves twice its average daily range on twice the normal volume, time is ticking and the reversal is near.
- When all the talking heads on financial television start throwing out huge numbers and saying that your trade will go up another 50%, it is time to look for the exits.
- When a close family member that does not trade or invest, calls you out of the blue to ask whether they should buy into your trade, that is when there are no more buyers left.
- When your trade reverses and everyone thinks that the lower it goes the better it looks, common sense has left the trade and only fools rush in.