A Trader’s Hardest Decision – When And Where To Get Out?
The hardest decision a trader has to make is when and where to get out of a position. You never want to have a winning trade to turn into a losing trade. The million dollar question is where to get out when the market just misses your target and starts coming back down to your entry level.
Here is a trade I had going in the ES this morning. I bought at 1940.50 as the market was coming up off the low of the day and there were some single prints appearing. I usually like to try for 5 points. The market traded up to 1945.00. Just missing the target by 2 ticks and sold off. I got out at 1941.75. A profit of 5 ticks. What prompted me to get out? Take a look at the chart.
I decided to get out when I saw the COT near the top of the bar, that’s the black box in the bar. It is the price where the most volume traded in the bar and I saw multiple selling imbalances appear. I really felt I had to get out. If I was using a trailing stop that I moved to breakeven, I would have been stopped out at breakeven as the market traded as low as 1940.25, one tick below my entry.
This is why it is important to know how to read what the market is telling you. If you are simply using an indicator based trading system you would have moved your stop to break even because that is how indicator based strategies work. Once a trade goes in your favour quickly move your stop to breakeven to “limit your losses.” All you are doing is limiting your profit.
It is better to get out of the market on your own accord rather than letting the market take you out. If you know how to read what the market is telling you, then you can react and still take some money out of the market rather than getting out with nothing or a small loss.
Trading with order flow allows a trader to know when conditions change within the bar. Rather than waiting until the bar closes. Once you start trading with order flow you will want to throw away all your other indicators because you will see just how useless they really are.