Why Do Traders Exit Too Early?

I worked with a trader (actually, many of them) who gets out of trades too early. Not because the market told him to. Before his exit criteria had even been triggered.

Here is what that looked like on a recent trade in the S&P 500 E-mini futures. He bought the breakout long. Price moved his way, and moved fast. Then, a few candles later, he closed the trade out of fear of a reversal, with a nice profit for the day.

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His strategy had a clear exit. Price kept running well past the point where he got out, and the exit his plan called for came much higher up the chart.

A profitable trade can hide a costly habit. Every time fear closes a position early, it cuts off the very winners that are meant to pay for your losers. One early exit looks harmless. Repeated across a hundred trades, it can be the difference between a system that works and a system that never gets the chance to.

And the frustrating part? He knew all of this. He knew his plan. He knew his exit criteria. He fully intended to follow them. Yet when the moment came, he did it again.

He Had Already Taken the Loss

So we explored why he kept repeating this behaviour despite his best intentions. What we found surprised him, and it is something I see in trader after trader.

He had already taken the loss in his mind, before it had even happened.

While the trade was still in profit, his mind was playing a different movie. Price pulls back. The profit evaporates. The trade turns red. He gives it all back, again. He felt the disappointment, the self-criticism and the frustration as if it had already happened. And to make that feeling stop, he got out.

That's what our brain does. In its attempt to keep us safe, it tries to predict the future and avoid potential pain. This is anticipatory anxiety at work, and it is closely linked to loss aversion.

It is an ancient survival system, and it is very good at its job. It just doesn't understand that in trading, uncertainty is not danger. Uncertainty is the environment you work in.

When Protection Creates the Pain

Here is the irony. Reacting to that fear prematurely created exactly the outcome he was trying to avoid.

He missed out on profits. And he ended up right in the pain he was trying so hard to avoid. Not the pain of a loss, but the pain of watching a trade he planned, analysed and entered well go on without him. The regret. The second-guessing. The temptation to jump back in late, or to hold the next trade far too long to make up for it.

Fear promised protection. What it delivered was a smaller winner, a bigger emotional cost, and one more repetition of a pattern that is now a little harder to break.

React To Price Action, Not Your Fears

Train yourself to manage the risk by following your plan. That is what the plan is for.

You make your plan before the trade, when you are calm, clear and objective. You decide where you get in, where you get out if you are wrong, and what has to happen for you to get out if you are right. Those are your exit criteria. Once the trade is live, your job is no longer to predict. Your job is to respond.

Then comes the deeper work. Train your brain to connect pain with not following your process, instead of with not getting the outcome you wanted.

Right now, his brain links pain to giving back profit. So it does whatever it takes to avoid giving back profit, including breaking the plan. When you shift that link, so that breaking your plan is what feels uncomfortable, the urge to exit early starts to lose its grip. You stop rewarding yourself for the outcome, and start rewarding yourself for the process.

Four Steps To Stay On System

1. 01

   Write your exit criteria down before you enter. If you can't say exactly what gets you out, for a loss and for a profit, you are not ready to take the trade.

2. 02

   Notice the forecast. When your mind starts playing the movie of giving it all back, name it: "That's my brain predicting pain." You don't have to obey it. You just have to see it.

3. 03

   Let price action make the call. If your exit criteria haven't been triggered, the trade stays on. Your feelings are information about you, not about the market.

4. 04

   Score yourself on process, not outcome. After every trade, ask one question first: did I follow my plan? Celebrate the yes, even when the trade loses. Take the no seriously, even when it wins.

Yes, sometimes you lose more and sometimes you gain more. But over time, you will see it even out. That is what an edge is. It doesn't show up in one trade. It shows up across many.