Lesson 1: Importance of Exits
Lesson 1: Importance of Exits
It’s said in real estate that profits are made on the buy. So buyers focus on the purchase price of the house and work diligently to find distressed sellers desperate to unload their home at below market rates. Most people who trade stocks or options mistakenly assume the entry price is just as important. But it’s not.
What most people don’t know (or can hardly believe) is that the chosen exit tactic (not the entry price) actually sets the base winning percentage. What we hope to show with this and subsequent lessons is the power you have over your market profits simply by selecting an exit strategy (risk 1 to make 2; risk 3 to make 1; etc).
Each of us has a natural trading style which can be sorted into three main groups. Each style has a unique probability profile, base winning percentage, expectancy, and a specific approach to targets and exits. Knowing your natural trading style helps you focus your efforts on the process of trading more than the outcome come of individual trades. Focusing too much on outcomes will whipsaw you into and out of trades at exactly the wrong time and for the wrong reasons. This sort of trading might also cause you to give up and go back to what wasn’t working in the past.
Your natural trading style gives you a clear understanding of the mathematical probabilities and expected winning percentages that helps you trade systematically without the emotional swings caused by a less structured approach.
This lesson will lead you through five parts:
Each of us have different risk tolerances and needs as we start putting our money to work in the markets. By sorting exit strategies into natural trading styles (and corresponding probability profiles), we’ll help you employ a market style that works with your strengths. Investing or trading from your position of strength should give you more consistently profitable results with not extra time because the stress of trading will cause you to react in ways that support your efforts, not sabotage them. Other lessons will get into more detail for how to improve your trading edge with simple, time-tested techniques, how to leverage your results with options, and how to make the transition to real money. These other lessons are designed to help you improve your base winning percentage so you have higher profits. Trading edge (also known simply as, “edge”) are strategies and tactics to help you improve your base winning percentage. Always carefully prove any new strategy or tactic until you are confident they work consistently to improve your expected results. Our company mission is to help you approach the market much like a professional trader would…with a clearly defined system, a clear understanding of probabilities, and the ability to focus on following your system and not on individual trade outcomes. Only then can you more accurately establish the best possible risk management and profit potential for your trading capital. Wall Street has a saying that money flows where it is treated best. If you treat your money well by establishing the best possible risk management and profit potential, money will more likely flow into your accounts.
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- The base winning percentage for each probability profile
- Choosing your winning streaks and how that affects your trading results
- The three main probability profiles (Win Big, Just Win, Win Frequent)
- Winning or losing streaks associated with each profile
- Identifying the probability profile that fits your natural trading style
Each of us have different risk tolerances and needs as we start putting our money to work in the markets. By sorting exit strategies into natural trading styles (and corresponding probability profiles), we’ll help you employ a market style that works with your strengths. Investing or trading from your position of strength should give you more consistently profitable results with not extra time because the stress of trading will cause you to react in ways that support your efforts, not sabotage them. Other lessons will get into more detail for how to improve your trading edge with simple, time-tested techniques, how to leverage your results with options, and how to make the transition to real money. These other lessons are designed to help you improve your base winning percentage so you have higher profits. Trading edge (also known simply as, “edge”) are strategies and tactics to help you improve your base winning percentage. Always carefully prove any new strategy or tactic until you are confident they work consistently to improve your expected results. Our company mission is to help you approach the market much like a professional trader would…with a clearly defined system, a clear understanding of probabilities, and the ability to focus on following your system and not on individual trade outcomes. Only then can you more accurately establish the best possible risk management and profit potential for your trading capital. Wall Street has a saying that money flows where it is treated best. If you treat your money well by establishing the best possible risk management and profit potential, money will more likely flow into your accounts.