Why Having an Exit Plan Is Important

Many investors concentrate solely on when to enter the stock market, neglecting the equally important aspect of knowing when to exit. A well-defined exit plan helps protect your profits and minimizes the risk of substantial losses. Often, investors hold onto falling stocks, hoping for a recovery. However, this hope can lead to significant pain if the stock continues to decline. Therefore, having a clear exit strategy is crucial for every investor.

A Real-Life Example of Falling Stocks

Consider a stock that rose from ₹400 to ₹1,400. Many investors enjoyed the upward trend. However, it then began to fall, dropping to ₹800 before rising again to ₹1,000. After that, it plummeted sharply and is now trading around ₹60.

Such a drastic decline can devastate a portfolio. The key question is: at what point should investors have exited? If someone followed a strategy based on momentum or utilized moving averages, they might have exited near ₹900 when certain indicators, like the 200-DMA, broke. Others might have waited for critical support levels near ₹750 or ₹800 to break before making a decision.

Don’t Wait Too Long

Some investors even wait for the all-time low to be broken before taking action. However, by that time, the damage is usually extensive. There are often brief periods during these declines when stocks experience an increase in trading volume or hit the upper circuit. These moments might present opportunities to exit. The market frequently provides several chances to sell; the question is – are you prepared to take them?

Learning From Past Mistakes

The decline of stocks like RCOM in the past illustrates the consequences of holding on for too long.

That stock fell from ₹700 to less than ₹1, while many investors clung to it, waiting for a recovery that never materialized. If you notice your portfolio declining, it’s essential to take action. You initially bought the stock to grow your money; if it isn’t performing and is decreasing in value, holding onto it without a plan is unwise.

Use a Strategy That Works for You

You don’t have to adhere to someone else’s exit strategy. Utilize any indicator that resonates with you – whether it’s a 20% loss, a 50% drop, the 200-DMA, RSI, or Supertrend – just ensure you have a plan. Set a predetermined threshold for yourself; if the stock falls below that point, exit your position. You can always re-enter when the stock begins to rise again, but safeguarding your capital should be your top priority.

Is your portfolio equipped with a solid exit plan? Have you set your stop-loss levels? Share your thoughts in the comments below! If you found this blog helpful, don’t forget to share it with your friends!

WeekendInvesting launches – The Momentum Podcast

In this episode of the Momentum Podcast by Weekend Investing, Alok Jain sits down with Mr. Thomas, a passionate retail investor, to uncover his remarkable journey—from exiting the markets at the worst possible moment during the 2020 crash to finding clarity and consistency through momentum investing.

Topics Covered:

✅How a train journey sparked his interest in the stock market

✅Emotional investing mistakes & lessons from the COVID crash

✅Why he shifted from value to momentum-based strategies

✅The Weekend Investing system that gave him peace of mind

✅How he balances aggressive bets with long-term wealth-building

Whether you’re just starting out or navigating your own investing style, this episode is packed with relatable stories and actionable insights.