Getting into a trade is easy. One click and you’re in. Getting out is a whole different ball game.
That’s when all the emotions start to kick in. Emotions you didn’t even know existed start to pour out of you. As soon as you get into the trade, your stock moves up and fear grasps you that the small profit you have will quickly disappear. You become scared and you get out of your trade before your target exit.
Or, some of you may experience greed when your stock hits your target exit. That selfish desire overcomes you. You stay in the trade hoping and praying that you’ll peg the top of this trade. These are emotions that will swish around in your mind while your finger firmly presses against your mouse unable to decide on where to exit. You become that deer stuck in the headlights.
How many of you have exited out of your trade only to watch it have a rip-roaring rally two seconds after you get out of the trade? It’s almost as if they are watching you, waiting for you to exit before they take it higher. How many of you have had this walk away from your desk and do a shot of tequila in the middle of the day moment?
This moment has a name. In fact, it’s the worst disease you can have as a trader. It’s called Exit-itis.
Exit-itis is the inflammation of frustration that occurs whenever you exit out of a trade too early. It can occur daily and it can lead to extreme unhappiness. I have personally suffered from exit-itis for a quite a few years along with many of my traders and this is what led me to find a cure. The cure I found for exit-itis is scaling.
Scaling equals happiness. Scaling in and out of trades will keep you emotionally and financially balanced.
Let’s face it, we all want to peg the bottom and the top. It’s genetically embedded into our trading genes, but it’s impossible to achieve this on every trade that we enter. So why do we get upset when we don’t achieve it? Even though we plan our trades, with great target exits, we can’t help the fact that we will be upset if we leave money on the table.
I have a great plan for all of you that suffer from his horrific trading disease. You first need to map out your trade. Mapping out trades before you get in, keeps you in control of your trade. Either you’re going to control your trade or the trade will control you. Map out your trade with a few targets exits and one stop loss if the trade doesn’t work out.
To execute this scale out method, I needed to increase my share size a bit so that my commissions didn’t eat too much of my profit. Please don’t add onto your share size unless you’re already a profitable trader. If you can make money on 100 shares, you can make money on 1000 shares, but don’t trade 1000 shares if you can’t make money on 100 shares. Only add onto trades that are already showing you a profit.
It doesn’t matter if you’re doing short term trades, or longer term trades, scaling will make you a happier trader.
Here is a great example of scaling on a recent trade I took on TBT, which is the Proshares Ultrashort Lehman 20 Year Treasury.
I bought TBT @ $33.76 with a target of $35.
AT 9:38am Est I added to my TBT long swing position. Right after I added onto my position, it rallied up to $34. Below is a post from my live trading room.
Even though my target on this trade was $35, I knew that it could have trouble at $34 so I exited out of half my position.
Below is my chat on exiting half of my position. I always post my entries and exits in my trading room, so that my traders can learn during real live trading.
I took some nice profit off the table. I immediately felt happy. If it went higher and hit my 2nd target, I would still be happy because I still had half of a position. If it didn’t go higher, and came all the way back down I would be happy that I took some profit. You see, either way I am going to be happy. Scaling is my cure for Exit-it is.
It just so happens that it did hit my 2nd target the next day. Below is my exit that I posted in my trading room.
My target was $35 but I like to get out before it hits $35. So many times, they will rally the stock up very close to $35 but stop at $34.87. Next they will drop the stock all the way back down before rallying it back up to $35. The last eighth is the most expensive eighth in the world. Over the past 20 years I’ve learned to cut the line and get out before everybody else does. This has saved me thousands of dollars over the years.
You may be wondering why I took this trade in the first place. This trade was one of my picks from my previous Boot Camp master swing class. TBT broke above my T-spot which was $33.75. Therefore, I entered the trade. I created the T-spot a few years back in fact I did a whole workshop on it. The T-spot is the exact spot on your chart where the trend changes, from downward to upward and vice versa.
Look at this weekly chart of TBT
I’ve drawn a line from the highest peak down as well as a line from the tops of this recent rally TBT just had. Where those two blue lines cross, x marks the T-spot @$33.75. Bullish above, bearish below, no thinking. You can find T-spots on a 5 minute, a daily or a weekly chart. The Weekly chart is the strongest chart you can draw them on. This is how I’ve found the highest probability trades.
You can see on this daily chart of TBT that 35 is major resistance. That’s why $35 was my high-end target on this trade. If TBT can break above 35, the next high end target I have is 40, however I will be scaling out at each of these $1.25 increment levels ($36.25, 37.50, $38.75) with the last ¼ target $40 or break even to avoid exit-itis.
Until next time,
Stefanie Kammerman, has trained thousands of students worldwide how to Day Trade and Swing Trade over the past 22 years. She is the Founder and Managing Director of The Stock Whisperer Trading Company, www.thestockwhisperer.com where she runs an online educational trading room called “The Java Pit”. Her unique approach of old fashioned trading in a high tech world teaches her students how to trade by reading the tape and following the Dark Pool, which is how she spotted the last 9 corrections weeks before they happened.