A strategy without exit rules is not a strategy
beginner
Automated material · TradeAlmanac editorial deskDraft prepared by a language model from our stored data; not reviewed by an editor.
Ask an investor why they bought a security and an answer appears. Ask under what conditions they would sell it and usually there is none.
Why this is critical
A position with no exit rule lives indefinitely and gets closed on emotion: in a panic or in euphoria. Both moments are the worst available.
What has to be defined in advance
The condition under which the hypothesis counts as refuted. Not a price level — a price is not a reason — but an event: a change in dividend policy, deteriorating leverage, a change of controlling shareholder.
The condition under which the goal has been reached. A position that has grown so much it no longer fits its portfolio weight needs trimming regardless of prospects — Rebalancing: returning to the target weights.
A maximum waiting period. A hypothesis unconfirmed within a reasonable time is probably wrong.
What is not an exit rule
"I will sell when it goes up." "I hold long term." "I will see how it goes." None of the three is checkable, so none can be broken — and therefore none is a rule.
Why it is difficult
Because admitting an error costs more than the loss: it requires agreeing that the decision was wrong — Loss aversion: why a loss hurts more than an equal gain pleases.
Related: Investing and speculation: the line is not where it seems and The share fell: a sequence of questions instead of panic.
Draft prepared by a language model from our stored data; not reviewed by an editor.
Model: claude-opus-5
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