Hey Traders,
I want to share a lesson today that every trader needs to hear – whether you’ve been at this for years or you’re just starting out.
It’s a simple lesson, but it can mean the difference between success and stress in your trading.
Here it is: Decide on your exit strategy *before* you enter the trade.
That’s it — yet you’d be surprised how many people skip this step… and then find themselves scrambling when things don’t go exactly as planned.
Let me explain.
The Heat of the Moment
I got an email from a member the other day.
He had a trade that hit the trip wire — a warning level we set when a trade moves against us. And he was emailing to ask me which exit strategy to use.
Here’s the problem with that question: Once the trip wire has already been hit, it’s too late to start figuring out your plan.
Why? Because in the heat of the moment — when the trade isn’t going your way, and emotions are running high — that’s when traders make the worst decisions.
It’s only human. Fear and greed creep in. You’re worried about losses. You’re chasing what *might* happen instead of sticking to a decision you made with a cool, level head.
Trust me, I’ve been there.
Early in my career, I tried to wing it. I’d get into a trade, hoping it would hit my profit target, but I never thought much about what I’d do if it didn’t.
Then, when the stock moved against me, I’d start guessing: Should I hold on? Should I sell now? Should I double down?
Nine times out of ten, those snap decisions ended badly.
But the good news is: There’s a better way.
Pick Your Exit Plan *When You Enter the Trade*
Here’s what I tell every trader: You need to choose your exit plan *before* you hit the “buy” button.
Why? Because when you’re calm, clear-headed, and BEFORE you have any money at stake, you’ll make better decisions. You can look at the trade objectively and decide:
“What will I do if it goes my way?” and “What will I do if it doesn’t?”
That way, when things get stressful — like when a trade hits the trip wire — you don’t have to guess. You’re simply executing the plan you already made.
Now, let’s briefly talk about those exit strategies.
Exit Strategies
As an example, I’m going to briefly talk about exit strategies for a credit spread.
When I enter a credit spread, I use a “trip wire” to help manage risk.
The trip wire is a specific stock price that, if hit, triggers my exit strategy. And in the case of a credit spread, I’ve got three options to choose from:
- Do Nothing
If the stock hits the trip wire but I still think the trade will work out, I can choose to do nothing.
This is the most hands-off approach — I’m sticking with the original trade and letting it play out.
This strategy works best when I’m confident the stock will end up where I need it to be by the end of the week. But fair warning: if the price doesn’t go where you need it to, you could end up with a loss. On the plus side, your loss is limited to the difference between strike prices, minus the premium you collected up front.
- Unwind the Trade
If the stock hits the trip wire and I’m not feeling good about it, I can unwind the entire trade.
In other words, close it out. Sure, I might take a bit of a loss — but sometimes that’s the smartest move. Taking a small loss early in the trade can keep me from taking a bigger hit later. For the record, depending on when you close it out, this loss could be significantly smaller than going with option #1, so in some cases it can be your best option.
- Adjust the Trade
If I’ve got the funds available and want to stay in the trade, I can adjust it.
For example, you can buy back the short put (the one you sold) and stay long the long put.
This strategy is a little more advanced, but it’s a way to turn a losing trade into a winning one if the stock keeps moving against your original position.
It’s not always the right move — and as I said, it is a bit more advanced — but it’s good to have it in your back pocket.
The Key: Pick One and Stick to It
Here’s the deal: None of these strategies are “right” or “wrong” on their own.
The best strategy depends on your individual goals, your individual risk tolerance, and how you approach the trade.
The important part is deciding **before you enter**.
That way, you’re not sitting there, staring at a losing trade, wondering what to do next. You’re calm, focused, and ready to execute the plan you already made.
The Bottom Line: Don’t Guess — Plan
Trading doesn’t have to be stressful. The reason so many traders feel overwhelmed is because they’re making it up as they go along.
But when you take the time to plan your exit before you get into the trade, you’re removing all that guesswork. You’re cutting out the emotions. And you’re putting yourself in control.
So next time you enter a trade, ask yourself, “What’s my exit strategy?”
Pick it. Write it down if you have to. And when the trade plays out, just stick to the plan.
Trust me — it’ll make your trading life a whole lot easier.
Trade well,
Jack Carter
P.S. Next week NVDA’s CEO Jensen Huang is dropping a SHOCKING announcement… And no matter how it goes, HERE’S how I plan to trade it.