An early exit in trade is a general problem for almost all new traders and some with experience as well. In fact, it is often the reason for traders’ struggle in the market. The behavior is not an isolated problem, rather it shows underlying disciplinary issues, just as the saying goes, there is no smoke without a fire. Here’s why an early exit before hitting your stop loss is wrong.
People make premature exits in trades when they intend to go away with their small profit/loss before the market turns around to hurt them, but this haste often leads them to rake in loss. It is not recommended to stay adamant on a wrong trade if you already know what you are doing already, though. To proceed, what causes this behavior may be an equal measure of psychology, self-discipline, lack of trading plan or knowledge, or recent biases—sometimes it is only one of these. An example of a poor strategy is to frequently apply break even at the slightest threat to your fund or keep widening your stop loss out of hope of a last-minute miracle.
When people fall into these mistakes, they do so because they lack comprehensive knowledge of the market, have no actionable plan, or stick to unrecommended strategies. They trade head-on without having what it takes or learning from those who have it. Before anyone starts to invest money in these things they need to have a strong backing or reach a decent level on how to manage a trade. It is too much risk to sit in front of a screen all day tossing money based on speculations. Try to take some time off investing to learn if you have to do so.
Apart from the newbies whose struggle is due to lack of knowledge, the remaining issues are in one way or another connected to self-discipline and poor psychology. Trading is about improving your financial situation as well as your personality. There are times when the gains will continue to rise, and there are times when it just keeps falling. Those moments determine who has got the emotional strength to succeed. Psychology is a major cause of setback for new traders in managing the uncertainties associated with trade. This may be the case for traders, who allow recent issues to linger in their minds and weigh them down from taking opportunities. Have you had consecutive failures despite learning hard to become the best you can be? Hold on, study more, then try on.
Preconception is another psychological reason people panic into an exit. Those who got in thinking it is a get rich scheme, plus they can use their “high IQ” to manipulate the market to their advantage. If you harbor this intent, it is about time you abandoned it. Surviving as a trader is not for the hasty, rather it is for consistent people. Clearing your mind off dramatic expectations and instant gratification will help you persevere, as well as learn to be consistent.
To solve these problems, learn to make a trading plan that clearly states your strategy, including ways to implement it. Keep your daily outcome in a journal to be a reminder of what you failed at and how to get better. If you see significant improvement in your psychology, discipline, and mindset when trading, then learn to make stop loss or other exit strategies in your plans. Getting familiar with the market takes time, but to boost your confidence as you proceed, learn essential things. These include knowing how to select the right holding plan, how to use resistance levels with profit/loss ratios, and understanding PA strategies.
Always remember that a stop loss exists to get you out of unfavorable situations based on what level of loss you are willing to bear. Carefully set the stop loss before you trade and stick to the protocol— discipline is key. Do not allow emotions to get the best of you during stop loss application. If there is a need for adjusting your set stop loss, ensure that it is part of the plan for likely scenarios. Take studies more seriously too, and continue to work because, in trading, nobody gets to the top without a loss at some point.