Exit Strategy deals with how one exits a trade that fails to progress as planned. If a trade does not turn out as originally planned, you must exit the position. The most important thing to know is to pre-determine exactly where you will get out, before you enter the trade.
How to liquidate a position that does not progress as planned -
1. Stop Loss order placed with your broker will let you automatically exit a trade that violates your trading plan.
2. Time stop - consider having a time contingency built into your trading plan where if a trade does not move as anticipated, exit the position. Profits are a function of time so very good reasons have to exist for holding a profitless trade for more than a week.
3. If you’re trading short term, have a rule in place where if your planned objective target is not met in a specified amount of time, you will exit the trade.
Trading Tip - Place your stop loss at the same time of placing an order for the trade. Avoid using mental stops because even if you’re the most disciplined person in the world, anything can happen in the market and you need to protect your trading capital whenever you put it at risk.