Premature Exits

As I continue to stay on the path of disciplined trading, there is one thing that I will need to work on. That thing is not exiting my trades prematurely.

I am still somewhat kicking myself over the fact that I prematurely exited a series of recent trades. This post will be a hybrid of a trade review and a refinement of my exit rules.

The first trade occurred on the AUDNZD pair. Multiple timeframe analysis was in play here.

AUDNZD Daily

Since I am writing this a few days later, you're seeing a few additional bars. However, I only saw the pinbar formation since I was monitoring this trade live.

Price hit the 1.09750 high and then stalled. The pinbar was a great signal showing price's inability to not only trade but also hold above the high. When I saw that, it was safe to start having a bearish bias.

AUDNZD 1-Hour

Hopping down to the hourly timeframe, I entered short. This was a mistake. The decision to enter short was correct since I did methodically establish a bearish bias. The mistake was where I entered. As labelled on my price chart, the short trade entry should've been to pre-emptively bet on a breach below the 1.09105 level.

The place where I entered was insignificant in the sense that it did not support the thesis of accelerating momentum in any way. Instead, price was simply drifting towards the minor 1.094 level.

As a result, I exited this trade with a small profit. If I was a bit more impatient, I could've really optimized my entry and rode the entire breakout until an hour or so before the end-of-week close.

This premature close occurred over on my EURAUD trade as well.

EURAUD 1-Hour

Over on the hourly timeframe, price bottomed out on April 20th. On the following day, price attempted to breach above the upper boundary range.

As price breached above this level, I entered long. I exited early morning on Friday, April 22nd. The decision to exit could be considered correct since trades generally shouldn't be held through weekends. If I did hold this trade through the weekend, it still would've been a non-issue given how deep in the money I was.

The exit was problematic because I exited early morning on Friday rather than near the session close. There was also no reason for me to exit since I technically didn't see any loss in upside momentum.

EURNZD 1-Hour

Finally, I spotted a very similar breakout setup over on the EURNZD trade. I entered long just as price breached above the 1.6050 level. I closed out this trade out early morning on Friday, April 22nd as well.

This was problematic because there was no sign of a reversal. In other words, I did not see any loss in upside momentum. By not closing the trades out at their most optimal point, this jeopardizes my payoff structure and win rate sustainability.

In terms of refining my exit parameters, a trade should be closed when:

1. There is a clear price action reversal signal. This could be indicated by larger bearish bars in an uptrend or relative lows being taken out with ease.
   
   
2. Price is drifting to the upside with smaller bullish bars in an uptrend.

I think the exit parameters will be much harder to follow as there will be other temptations to exit a trade.  More specifically, I will need to be comfortable with letting trades hit their respective stops so that the winners can really ride out.