Trading Exit Strategies to Avoid Unintended Positions I

It’s common practice amongst traders to study market trends for the best timing to enter a trade and strategies to execute it.

However, trading can be unpredictable, and not always go as anticipated. While entry is well planned, newbies may feel confused after concluding a trade.

A: “The entry timing and price seemed ideal. Why did I end up with a loss?”

B: “What should I do if the market reverses after a stop loss?”

C: “I thought I’ve taken profit and closed out the position. How come there is still an active position?”

New traders tend to focus on market entry strategies while overlooking exit strategies. Without a well-timed exit plan and execution, a trade entered at a seemingly perfect price may end up with loss.

Ann is going on a vacation soon. She holds 100,000 BTCUSD long positions with an entry price of $10,000. She set a limit sell at $10,200 to take profit and a stop loss at $9,800.

After returning from her vacation, Ann found 100,000 short positions in her account. Feeling baffled, she contacted customer service for help.

While Ann was on vacation, the BTC price dropped to $9,700 and triggered her stop loss. It rose to $10,250 afterwards and her limit sell order at $10,200 was filled again. Instead of closing the long position, she ended up with a short position.

In these series of articles, we will show you how to effectively execute your exit strategy and to avoid unintended positions. 

Bybit offers 3 features to help users to reduce or close positions.

1. Reduce Only

2. Take Profit & Stop Loss

3. Close on Trigger

For a worry-free vacation, let’s take a look at how to use Reduce Only, Take Profit & Stop Loss and Close on Trigger. 

Exit Strategy Part I – Reduce Only

What is a Reduce Only Order?

When the reduce only feature is enabled, the order will only reduce a position, not increase it. The order will be cancelled if it increases a position (order on the same direction as the position), or the order size will be dynamically adjusted to only close out an existing position (order on the opposite direction of the position). 

The reduce only feature only applies to limit orders.

Let’s review how to apply reduce only to Ann’s case.

When the BTC price dropped to $9,700, the stop loss was triggered, and her long position got closed at $9,800. If Ann had enabled reduce only feature on her $10,200 sell limit order, the order would be automatically cancelled now. Ann won’t end up with any short position regardless of further price movement. 

Reduce only is commonly used for taking profit strategies. If a position was manually closed, stopped out or liquidated, the take profit orders will be cancelled immediately. Otherwise a limit order for take profit purposes may end up opening new positions.

How to enable Reduce Only feature?

When placing a limit order, you may tick the “reduce-only” option below.

Please note that reduce only applies to inverse contracts. USDT contracts allow hedged positions. Any ‘close’ order is effectively a reduce only order.