Much of the problem I have with getting out of a position too soon is because I am in it too early. It goes against me and I wait too long. But then I get lucky and I go from being down (sometimes large) to breakeven. At that point I will start to get out of my position, only to watch the real trade play out and miss the opportunity.
I was too early in the trade and had too much size. I had no patience left. I was exhausted and thankful that I escaped. Past trades that didn’t work out this way or worse came to breakeven and quickly went back against me, had me believing this was my only chance.
All because I was too early and had too much size. Often the result of adding to the position as I was losing.
Sure I was “scaling in” alright, but it was actually adding to a loss, not scaling into a winning trade with patience.
How can this be avoided?
It comes with preparation.
Identifying the levels of entry, and pre-determining the initial and subsequent exit levels. Entry must be a starting size, maybe 10% – 20% of your maximum size you are willing to put on the trade.
When the trade is working correctly, then you add.
If it never works, you never add, you wait, or move on at a stop level, a predetermined max loss.
Now earlier I said initial and subsequent exit levels because you have to plan to take some of the position off, not all of it.
Intentionally incorporate in your trading plan something like closing a quarter position at a certain key level, then another, and another, while any given time planning to close the position should the trade reverse back to your average.
Those levels might be for example on a short perhaps a large flush with a lot of volume, on a long a quick swipe through a whole or half dollar or previous level of resistance, or after a steady uptrend shows signs of reversing.
When you know the trade from start to finish before you take it, you tell yourself you will do this and that. If you master that, then you have to master actually doing what you said you would.
Don’t let the market decide for you as often times it will decide taking your money is better than giving you more.