Exit
The price at which you close a position, whether at a profit or a loss.
Also called: close a position · exit price
Written by Javier Sánchez Ros
In plain language
Every trade has two decisions, and the exit is the one that determines the result. An entry only creates exposure; the exit converts it into a number.
Exits come in three flavors: the stop loss, which ends the trade when the idea is wrong; the take profit, which ends it when the idea has worked; and the discretionary exit, when conditions change.
Both exits should exist before the position does. Deciding where to get out while you are already losing money is the worst possible time to decide anything.
Worked through
One entry, two exit rules, over the same hundred trades
- Rule A: fixed 2R target
- 38% hit rate
- Rule A result
- +14R
- Rule B: exit on any green day
- 71% hit rate
- Rule B result
- −9R
Identical entries. Every trade opened at the same price on the same signal, and the two records are unrecognisable — one profitable with a losing majority, one losing with a winning majority.
Rule B feels immeasurably better to trade. Seven trades in ten close green, the equity curve is smooth for weeks at a time, and the trader can describe themselves as right most of the time. It is also the losing rule, because the wins are trimmed to a fraction of an R while the losses run the full distance.
This is why effort spent on entries has such poor returns relative to effort spent on exits. The entry determines whether you are in the move; the exit determines how much of it you keep, and the second question has a far wider range of answers.
The illustrative numbers are there to show the shape, not to describe a real system. The shape is the point: two sets of exit rules on one set of entries can sit on opposite sides of zero.
Why it matters
Traders spend most of their effort on entries, but exits are where the distribution of outcomes is actually shaped. Two people can take the same entry and end the year in opposite places.
Common mistakes
- Letting a planned exit drift because the position is "almost" back to break-even.
- Taking profits early on winners while giving losers unlimited room.
- Having no exit plan for the case where the trade goes nowhere for weeks.
Keep exploring
These concepts are connected. Understanding one usually makes the next one easier.
The price at which you open a position.
A predefined exit that closes a losing trade before the loss becomes serious.
A predefined price where a winning trade is closed automatically.
A stop loss that follows price in your favor and never moves back against you.
A trade’s result expressed as a multiple of the amount you originally risked.