Ask you self “What is the single most important aspect of trading?!” Having a sound, time-tested exit strategy. The exit strategy should minimize losses and maximize gains and be adhered to at all times. Not having a proper exit strategy combined with discipline is the single largest factor why most traders and investors fail. So when should you exit? There are many good, safe and sound possible exit strategies. Let’s compare two methods using LULU and GE as examples.
Below is the daily chart from the past 16 months. Let’s assume your strategy is to “buy when oversold and sell entire position when the daily RSI5 reaches 90“.
We’ll start in May 2017: You’d have bought then at $ 48ish and sold in July-2017 at $62.50 for 30% gains. Not shabby, but you’d have missed out on 100% of additional gains if you’d simple kept it. Say you re-entered late-September 2017 again at $57.50. You’d then have to sell about two months later at $75 for again around 30% of gains, but again have missed out on another >65% additional gains. Finally you decided to re-enter again mid-January as the daily RSI5 became oversold again albeit not as low as your trigger level. But, lets you nailed it and did enter another long position at $76. You would have sold three months later at $96 for 26% in profits, but missed yet again an additional >30% of gains.
Thus, this “rinse/lather/repeat” method is very profitable: it netted you 86% in total. Not shabby! But, if you’d not sold at all you’d have over 170% in total profits by now. Thus, not only did you pay three times as much in trading fees so far, with a $10K position size you’d have missed out on over $8500 in gains. That’s a lot. So is “buy ‘n hold” than always better?
I don’t think that “buy ‘n hold” is thus the ultimate strategy either. See GE for example, where if you’d bought it in the 1998 you’d be now, 20 years later (!) finally break-even… That’s not a good strategy either as that’s 20 years of waste opportunities elsewhere. I therefore call it the “buy ‘n hold and hope” method. Thus, other strategies that move the needle closer to the maximum profit possible need to be applied.
I’ve developed such strategies, through what I call a mechanical system. I’ve taught many traders my systems already and they are making good money (see here for example). Hence, if you want to also learn and adept to a mechanical trading system, which takes the guessing on when to buy or sell entirely out of the game as long as you are disciplined and adhere to the system’s buy and sell signals, then please sign up now by clicking on the link below or copy paste it into your web browser:
I look forward to having you on-board. I promise this will be transformative to how you trade, how you view markets and stocks. You will be less anxious and more relaxed knowing the system has your back.