Exits
Exits are split between unprofitable and profitable exits. The former aims at survival while the latter builds prosperity. We copiously discussed exits in Part II, The Outer Game: Developing a Robust Trading Edge. Below is a step-by-step short encapsulation that covers both the practical aspect and the mental hygiene of exits.
Stop loss
Stop loss has a direct measurable impact on three out of the four variables in the trading edge formula: win rate, loss rate, and average loss. For this reason only, it always sits at the top of the priority list. Remember that what separates pro short sellers from tourists is the ability to set stop losses and honor them. Think of what follows as an essential checklist. We covered all those topics throughout the book, with particular emphasis in Chapter 7, Improve Your Trading Edge.
- Set the stop loss at a logical articulation where the thesis is invalidated
- Set a loss mitigation trailing stop: This has two positive...
