Generally, when people are learning how to trade, they focus on when to trade; however, while knowing when to trade is important, it is just as important (if not more important) to know when to stop trading. Of course, this is very difficult – if you quit too soon, you could miss out on some winners, but if you don’t stop in time, you could lose your winners. So, knowing when to stop sounds good, but how do we know when that is?
When to Stop a Hard Session
It can be difficult to find that balance between continuing to follow your strategy in the hopes of a positive result and cutting your losses. Unfortunately, there is no hard and fast rule about this as it is largely subjective. You need to question how much capital you have. What is your risk and how much can you lose? How much attention and emotional strength do you have? With experience, you will have a better feel of when to stop and when to continue. The most important thing is that you not deplete your capital all on one trade – manage your risk so that you can live to trade another day.
Do Not Overtrade
There are two perspectives on this. Some traders prefer to aim for bigger profits on a single trade or on a few trades and will spend more time on those trades to make sure they are big winners. Other traders prefer a bigger number of smaller trades where the profits add up over time. Whichever strategy you prefer, the key is not to overtrade. Set your goals and have a plan. Control your exposure to the market. Once you have reached your goals, stop trading. Tomorrow is a new day and you can begin again, but overtrading now generally results in losses.
When to Stop Trading Altogether
We have spoken up to now about when to stop trading on a particular day. However, it is important to know if you should stop trading altogether – in other words, quit. It is not simple to find the right time to quit because often people quit when the going gets tough, but this may be just before success arrives. However, there are times when quitting is important:
- You can’t see any possible positive outcome for trading
- You constantly feel overwhelmed and negative about your trading
- Trading takes preference over your health or your family
- Your financial situation is negatively impacted by your trading so that your family is suffering or your mental health is impacted.
These are all red flags. At a minimum, take a break from trading in order to rest, relax and recharge. Save up some trading capital, assess your goals and reflect on your failures and successes. Use this to formulate a new trading strategy, while working on your perspective and objectivity. You may then be ready to try again. The markets are certainly not going anywhere if you need a break and quitting does not need to be forever.