The Exit Problem: Why Getting Out Is Harder Than Getting In

The Trade You Never Closed

You bought NO on some governor race at 32¢. Two weeks later it's trading at 18¢. You're up big on paper. You know the fair value is closer to 15¢. There's still edge left.

So you hold.

A month later a scandal breaks the other way and you're back to 30¢, staring at a screen wondering how you gave back a 14-cent winner. This is the exit problem, and it eats more accounts than bad entries ever will.

Why Exits Are Structurally Harder Than Entries

Entries have a clean framework. You have a thesis, you have a price, you have a size. The market either offers you your number or it doesn't.

Exits break every part of that. Your thesis is now half-confirmed. Your price is a moving target. Your size is fixed by what you already own. And worst of all, you're not deciding whether to act — you're deciding whether to *stop* acting, which your brain treats as a completely different problem.

There's a name for this in behavioral finance: the disposition effect. Traders sell winners too early and hold losers too long. Prediction markets amplify it because contracts have a hard ceiling at $1 and a hard floor at $0. When your 32¢ NO hits 18¢, your brain screams "only 18 cents of upside left" — ignoring that 18 cents on a contract worth 15 cents is still a 20% edge.

The Three Exits You Should Pre-Commit To

Before you enter any position, write down three price levels. Not in your head — actually type them somewhere.

The target exit. Where does your model say fair value is? That's where you start scaling out. Not all at once — peel off a third at fair value, another third at 5 cents past it, let the last third ride into resolution if the math still works.

The invalidation exit. What price proves you wrong? If you bought at 32¢ thinking fair was 15¢, and the market rips to 45¢ on real news, your thesis is probably broken. Get out. Being early is one thing. Being wrong and stubborn is another.

The time exit. Prediction markets have expirations. If you're holding a position with two weeks left and the price hasn't moved, ask why. The market may be telling you something your model missed. Time decay in your conviction is real — a thesis that hasn't played out in the window you expected is usually a worse thesis than you thought.

The "Would I Buy It Here?" Test

The cleanest exit heuristic ever invented: look at your position and ask whether you'd open it fresh at the current price.

If the answer is yes, hold. If the answer is no, sell. If the answer is "I'd buy a smaller size," trim to that smaller size.

This works because it strips away the anchoring to your entry price. The market doesn't know or care what you paid. Your P&L is a psychological artifact. The only thing that matters is expected value from *this price forward*.

The Uncomfortable Truth About Round-Tripping

Giving back a winner feels worse than never having it. That's a feature of human wiring, not a bug in your strategy. The traders who survive learn to feel that pain and act anyway.

The goal isn't to sell the exact top. Nobody sells the top. The goal is to have a system that gets you out somewhere reasonable, consistently, without requiring you to be emotionally regulated at 11pm on a Tuesday when a Bloomberg alert hits.

Plan the exit when you plan the entry. Your future self — the one staring at a round-tripped winner — will thank you.