A successful trader is one who knows when to sell or cover a short position. Entering into a trade or position is easy. When to exit is the most difficult. In fact this is what differentiates a successful trader from one who is just managing to remain afloat. In stock trading it is the emotions that play spoil sport. You should learn how to separate emotions from the decision making process.

When your trade is going against you the questions that immediately crop up in your mind are. Whether to sell immediately and limit your losses; Buy more to average your cost; Just wait for the market to turn around. There may still be many more questions that will arise when your trade is going as predicted by you. Whether it is the right time to sell and book your profits; Should you wait for some more time and bigger gains.

This becomes a larger problem especially to a trader who is not disciplined. A disciplined trader has a trading plan and sticks to it at all costs. In his case emotions do not enter into his decision making process. He has a plan and all that he has to do is follow it.

Price is the only factor that determines what action a trader has to take. The markets are unpredictable and our views and opinions are not going to make any change to the market. It is the behaviour of millions of traders that is going to make a difference to the market. As such you should learn to move along with the market, along with the trend.

Technical analysis is more objective. You should use it to decide when to exit a trade or cover a short position. In stock trading there is no one way to trade. It depends on many factors and your decisions will be based on these factors. As an individual you will not be able to know all the factors that are effecting the price movement of a stock. Whereas, the chart can help you in deciding as it is the outcome of the various factors at play in the market.

Here are some tips that can help you in making a decision when to sell or cover your short.

1. Fix a stop loss. This will be the level at which you will exit if the trade is not going as expected by you. This is the amount of loss that you are willing to take according to your trading plan. Expert traders think more about how to preserve their capital before thinking of profits.
2. Sometimes there is a gap in the price movement. When the gap is very small say 1% or less you can sit and watch but be cautious. If the gap is big say more than 3% or 4% then you should immediately sell or cover your short positions. Such big gaps occur only when there is a major news or development.
3. Have a price target to get out of the trade. This can be fixed by looking at the resistance and support levels on a chart. If the stock is in an up trend then it is always better to sell a small portion and keep the remaining to take advantage of the movement in the trend.
4. Use trailing stops when the price is doing its job. When the market is in an uptrend and creating higher highs and higher lows it is easy to keep pushing up your stop loss levels. This way you are able to lock profits in case the market reverses the trend unexpectedly.
5. The other dilemma is where to fix the stop loss or how much room should you leave when working with a trailing stop loss. Sometimes it will so happen that you tighten the stop loss too close and lose the chance to make more gains. Here technical analysis will come to your help. Have a look at the chart, the past price movements, the extent of daily variation in the price. All these factors together should be considered to arrive at the stop loss limits.