Schwab Trading Services Learning Center
When you think "buy," also think "sell." Don't just focus on how to get into a trade, but how to get out of it as well. After all, exit strategies are essential to risk management, protecting your trading capital, and limiting losses. But they are also essential to taking profit, which can then be put to work in new positions. In other words, an exit strategy can be the way out of a trade, which may provide you with capital or buying power that you can use to enter your next trade. So whether you're attempting to secure profits or limit losses, an exit strategy can help you determine how and when to close your trades out.
Many traders use a combination of tools and analysis to help them formulate their exit strategies. By doing this, they are seeking to identify the level at which to liquidate their position, and they are looking to use technology to help them close their trade at or near that level. For instance, a trader may use advanced technical analysis solutions to determine their sell target, then employ a stop order, which can trigger a sell when the position hits that level. It's important to remember that there is no guarantee that a stop order will be executed at or near the stop price.
But to put tools and technology to work, you need an approach or a general philosophy. Some traders are more analytical. Some are practical. Some are risk-takers. So naturally, as there are different kinds of traders, there are different approaches too. Here are three of those exit strategy approaches.