Specialty Skills

Are You Getting Out of Trades Too Early?

Dr. Woody Johnson

Does this sound familiar? You’re in a good high-probability long trade as born out by the Odds Enhancer calculations. The trade got filled and stalled for a moment before the price action began to drop. As it got close to the stop you thought, “It looks like it’s going to take me out, but that’s OK cause my stop is working.” Now, the interesting part happened when the price action took a turn and began to move up back up. As soon as it went into the green, you became fearful and worried. In fact, you may have panicked as you thought, “I should grab this profit because I need all the profits I can get …it might go back down and take me out for another loss.” The urge to take the small profit was too much for you to manage. You prematurely exited the trade and didn’t allow the winner to run. You did not follow your plan. You second guessed it and, immediately after you closed the trade, the price action rose until it hit what would have been your target. When that happened you felt depressed and angry because you “caved” again to anxiety and fear of letting the “green” run. Now, what did you tell yourself? Well, because you are a savvy trader you said that taking that small profit distorted your judgment and distracted your focus. In other words, you knew that you had done exactly what you had specifically told yourself that you wouldn’t do… again.

Prematurely exiting or getting out of a trade too soon while not allowing a winner to run is a common problem. Another way to say it is that you didn’t follow your plan and as you may know, allowing your plan to play out is crucial to gaining information on whether the plan is an effective one. It is for this reason and for several others as well, that you’ll want to note it in your trade log and your thought journal. Documenting the trade data helps you to uncover the mechanical triggers that are prompting the exit. For example, in the example above, it wasn’t the price action’s threat of hitting the stop; which is an issue for many who move stops in an effort to avoid the loss; it was the movement of the price going in his favor that initiated the anxiety and fear that the profit would be lost if the price action reversed and then hit the stop loss. Gaining the mechanical specifics will take you closer to getting a handle on a solution. Additionally, you want to document your internal data; that is, what you are telling yourself and feeling as you are about to take yourself out of the trade. In the example the thought was, “I should take this profit because I need all the profits I can get before it might go back down and take me out for another loss…” This thought is what prompted the fear and worry. In other words, that thought was masking a deeper limiting belief that a small profit meant that he was a “good” trader and that he must hang on to that at all costs…even the cost of hitting his target. The limiting belief was connected to his self-esteem and it became more important to hang on to this small profit because of what it meant than to risk it by letting the trade run.

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Finding out the deeper core motivations for rule violations is one of the important byproducts of documenting your internal data. You can’t confront this type of issue if you aren’t aware of what is motivating the behavior. See, the thought of, “I’ve got to keep this profit,” is often connected to an underlying belief that profits, however small, will validate you as a trader despite the fact that it is keeping you from an even larger profit and a better result. This underlying belief could be provoked by another deeper limiting belief that your profits are limited and you must take them whenever you can. This is also a belief in scarcity. So, the fear and worry continues to get triggered as your unconscious conversations around what this small profit means to you are circulating. As you unearth more and more of the limiting beliefs that are prompting negative emotions which drive bad behaviors, you are putting yourself in a position to be proactive in dealing with them and pre-emptive in decreasing them as a factor in your behavior.

Now that you have pulled back the layers of the problematic onion by using your journal/log process, it’s time for you to address the negative thought stream head on. Interrupt the pattern once you recognize it’s happening by stopping the process in its tracks. As soon as you feel the tension, anxiety, butterfly stomach, etc.; stop and take several deep breaths. Count to ten or higher. Change your position by standing up or doing something different, such as a brief physical exercise. This will take you out of the pattern, bring you back to the present moment and help you to focus on what matters most in the trade. Then ask yourself, “What must I be telling myself or believing to feel this tension, anxiety, butterfly stomach? What is really happening to the trade? What is in the interests of my A-Game right now?” At that point you are in a position of strength. You have interrupted the pattern, identified what is driving the desire to exit the trade, focused your attention on what matters most, and you can then do the right thing. This is not a panacea, you must practice this procedure. It’s like any important behavior you want to install as a habit; you must develop the capacity for strength and endurance by doing it repeatedly and training yourself. After doing this for 60 to 90 days you will have installed a new powerful, positive habit.

It’s imperative that you work on bringing and keeping your A-Game at your trading platform. This begins with becoming aware of what will take you off course and documenting the mechanical and internal data. When you have identified the underlying issues, then become proactive and pre-emptive in dealing with them by changing the negative thinking and interrupting the patterns one trade at a time. Getting out of the trade too early and not letting your winners run is as bad as moving a stop because in the long run they both lead to undesirable results. This is a critically important component of being consistently successful. Remember, you can’t change what you can’t face, and you can’t face what you don’t know. This is what we teach in “Mastering the Mental Game” On-location and Online courses. Ask your Online Trading Academy representative for more information. Also, get my book, “From Pain to Profit: Secrets of the Peak Performance Trader.”

Happy Trading

Dr. Woody Johnson


This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.