Deciding where to get out matters as much as deciding where to get in. Many traders plan the entry carefully and then improvise the exit, which is where emotions take over.
Measure in R
One R is the distance from your entry to your stop: the amount you lose if you are wrong. Targets are easier to plan in R. A target at 2R means the price has moved twice as far in your favour as the distance to your stop.
A simple plan
- Take part of the position off at the first planned target, for example 2R.
- Move the stop on the rest toward entry if the strategy calls for it; costs, gaps and failed execution can still produce a loss.
- Let a trailing stop follow the remaining part, raising it as price makes new higher lows.
Why plan it in advance
When the plan is written before the trade, there is nothing to decide in the heat of the moment. You follow the plan, then judge afterwards whether the plan was good.