If you start a journey, it’s pretty important to know where you’re going. Imagine jumping in a taxi and not knowing where you’re going. It’s not ideal.
But when it comes to trading that’s exactly what 90% of investors do. They jump on a trade and have no idea where it will take them. They don’t even know where they’d like to go. For most it’s a case of ‘hopefully it goes up and I can make some money’.
That’s like telling your Uber-Driver to go somewhere that’s better than here. That’s not really a great strategy either when catching a cab or investing.
The exit strategy is the most important part of your journey, it’s the most important part of the trade. Everybody worries about the buy trade, including when to buy, what to buy, how much to buy, but how much attention is being given to the sale? The sale, after all, is where the money is being made.
Of course, you need both to work. A poor buy entry price will mean less likely to have a good sell exit price. It’s the yin and yang of investing.
There’s the added problem that if you haven’t predetermined your exit strategy and the exact price that you want to sell, that decision becomes increasingly more difficult once you are in the trade. That’s because the emotions of fear and greed come into play, which weren’t there at the time of entry.