What Is Exit Strategy?
An exit strategy is a predefined plan for when and how to close a trading position. It encompasses both the stop-loss (where to exit if wrong) and the take-profit (where to exit if right). A complete exit strategy also addresses partial exits, trailing stops, and time-based exits.
How Exit Strategy Works
Exit strategies fall into several categories: fixed target exits (sell at a specific price), trailing stop exits (use a dynamic stop that follows price), indicator-based exits (close when RSI becomes overbought or a moving average crosses), time-based exits (close after N days regardless of price), and scaled exits (take partial profits at multiple levels). The best traders combine multiple methods.
Why It Matters for Traders
Exits are more important than entries, yet most traders spend 90% of their analysis on when to enter and almost none on when to exit. A mediocre entry with a brilliant exit strategy outperforms a perfect entry with no exit plan every time. Pre-defining your exit before entering a trade removes emotion from the most critical decision point.
