Cutting winners short: the premature exit habit

[Amanhasnoname]

A trade is up, and the fear of losing the gain grows. The urge to lock in the profit before it disappears is strong. So exits happen early, often well before the planned target.

Over many trades, the habit transforms the payoff structure. Average wins shrink while average losses stay the same, pushing expectancy down. The win rate rises, which feels good and masks the damage.

To detect it, compare the planned target with the actual exit for all winning trades. If a large share of exits occur at less than 70 percent of the target, the pattern is present.

Another test: for trades closed early, what would have happened if left alone? Tick data answers this. Often, a majority would have reached the target.

Fixes include placing the take-profit order at entry so the decision is made in advance, and using fixed rules for adjustments rather than discretion.

Awareness of the cost, expressed in pips per month, can motivate change.

What share of winning trades close before reaching the planned target?