L3.2 — The Exit Decision Tree

The exit decision is as important as the entry decision, but most traders have less structure around it. An exit decision tree covers three scenarios: the trade reaches target (close at defined level, or apply partial/trail rules), the stop is triggered (close, no adjustment, move on), and an unexpected structural event occurs mid-trade (assess whether invalidation criteria are met — close, or hold if structure is still intact).

The unexpected event branch is the most commonly mishandled. When a trade is open and a significant candle moves against the position but does not trigger the stop, the emotional response is to adjust the stop to avoid the loss. The tree says: "Has my invalidation structural level been closed beyond?" If no — hold. If yes — close. The tree removes the in-the-moment judgement.

Write your exit tree on a card that sits next to your screen. When you feel the urge to manually close a trade that has not triggered its rule, check the tree. The action required by the tree is the correct action. The urge to close early is the emotion that the tree was designed to override.