The exit of a trade: how? when? where?

what is your favoured entry/exit strategy?

  • single entry and single exit

    Votes: 61 48.8%
  • single entry and scaling out to fixed targets

    Votes: 19 15.2%
  • single entry and scaling out as market turns

    Votes: 14 11.2%
  • scaling in and single exit

    Votes: 11 8.8%
  • scaling in and scaling out to fixed targets

    Votes: 6 4.8%
  • scaling in and scaling out as market turns

    Votes: 14 11.2%

  • Total voters
    125

firewalker99

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This thread is meant for discussing exit strategies.
A lot of people focus on getting the entry right (me included) but fail to put as much effort in timing the exit, while this part of the trade is as important as the entry.

This thread is about finding the best equilibrium between on the one hand not taking exits too quickly (letting profits run) and on the other hand not taking them too late (with price already reversing back to your entry point).

I look forward to discussing several styles and strategies and hope others can contribute in a constructive manner.

I will post some examples and charts myself later on.
 
Me again

I may not have anything insightful to contribute at the moment, but will be following this thread with interest.

I think as a general rule of thumb, you should exit all or part of a trade where there is objective evidence that the future possibilities of the trade are diminished. If you think that it would be unwise to enter the trade at the current price (given risk / reward rules), perhaps it may be a good time to run to the exits.
 
Examples of exits

Here I enumerate some styles. The examples here are not necessarily ones I would use or that I am an advocate of.

Exit by means of:

1) using a specific trailing stop
2) on the break of a trendline
3) when price reaches the next important support or resistance level
4) when you "feel" the trade is in enough profit
5) when you get a new setup (according to your plan) that signals a reversal
6) market-on-close
7) scale out your position (first target at price x, second target at price y, etc...)
8) exit whole of your position at one specific price level using a limit order
9) before important figures/economic releases are out
10) wait for my indicators to signal overbought/oversold
11) timing: give the trade maximum x minutes or y hours time
12) on a "potential" selling climax / buying climax (what defines potential?)
13) when price seems to stall or moves into a consolidation
14) when price suddenly spikes in one direction on high volume (wide range body)
15) average daily range (thx jacinto)
16) ...

I'm sure many of you will recognize the trader who is trying to catch a complete trending day. You enter early in the day and take nice profits at a sensible target. Then at the end of the day you blame yourself for taking profits much too early in what is (in hindsight) a completely trending day. This thread is directed at all those who are aiming to improve on their exits (including myself) and is open for input from any member who is willing to offer some tips or suggestions to improve this part of the strategy.
 
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When to Sell?

This post is a copy of an earlier post in another thread, but I think it's useful to have it here.

Without the use of indicators, using just price the following are to be considered as warning signals:

- a breach of the uptrend (trendline)
- a head and shoulder formation where the right shoulder usually has less volume than the head
- volume does not confirm price action (meaning it should rise on breakouts and decline on retracements or consolidations)
- price is unable to make a higher high
- volume has dried up completely on the last move up and each swing higher is losing momentum

These should be considered as clear selling signals (imo):
- the neckline of the H&S pattern breaks
- price, after failing to make a higher high, now breaks the prior low
 
hi FW,

this looks like it will be a promising thread.

I for one, would say that depending on the type of trader, the type of exit.

I daytrade (Edit: and dont use any indicators whatsoever):

a)in the absence of price patterns that give a measured move, assuming the day gives a move, and doesnt range, will typically exit where the average daily range is met, and if not exit, tighten stops significantly at that level.

b) use price dictated exits: hammers, spinning tops, inverted hammers, etc. on breach of hi-lo depending on the side of a trade im in.

J
 
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My oscillator based trading strategy (see blog entry no. 11) gives me clear exit rules so it's really a question of box ticking!

However, it does seem, from my understanding of it, to work better scaling out at different levels using 3 lots.

I hope this thread will be promising too.

F
 
hi FW,

this looks like it will be a promising thread.

I for one, would say that depending on the type of trader, the type of exit.

I daytrade (Edit: and dont use any indicators whatsoever):

a)in the absence of price patterns that give a measured move, assuming the day gives a move, and doesnt range, will typically exit where the average daily range is met, and if not exit, tighten stops significantly at that level.

b) use price dictated exits: hammers, spinning tops, inverted hammers, etc. on breach of hi-lo depending on the side of a trade im in.

J

Thanks jacinto.

Interesting point you raise there, "the average daily range"... it's a concept I've thought of too. These are my "objections" or better called thoughts on the matter.

1) in a particularly trending day the average daily range will be exceeded and I've found that price could go as far as twice or even three times what is considered "normal"; which I'm sure you know that "catching" a good trending day will make up for plenty of one's losing trades

2) suppose the market has gone up 45 points and the average daily range is 50 but you get a long signal, would you still take it? and likewise in case of a short, does this influence your view?

3) the ADR can be quite predictable for some markets, but less for others; this is however something each has to find out for his own in testing

Nevertheless, I'm pretty sure you have something there with the ADR and it's definitely a path worth exploring.
 
I may not have anything insightful to contribute at the moment, but will be following this thread with interest.

I think as a general rule of thumb, you should exit all or part of a trade where there is objective evidence that the future possibilities of the trade are diminished. If you think that it would be unwise to enter the trade at the current price (given risk / reward rules), perhaps it may be a good time to run to the exits.

Your ideas or thoughts are always welcome lurker.
The problem is by defining "objective evidence". I've tried to give some possible parameters in the first posts of this thread.

However, I disagree with your last sentence. For instance it might be a good idea to exit a long trade on "euphoria" (wide spread bars on high volume where most likely sellers are coming in), but it would be a risky thing to enter a short there. You see, I'm not saying I would enter a short there, but it might be a point where I'd like to close my long...
 
Thanks jacinto.

Interesting point you raise there, "the average daily range"... it's a concept I've thought of too. These are my "objections" or better called thoughts on the matter.

1) in a particularly trending day the average daily range will be exceeded and I've found that price could go as far as twice or even three times what is considered "normal"; which I'm sure you know that "catching" a good trending day will make up for plenty of one's losing trades

2) suppose the market has gone up 45 points and the average daily range is 50 but you get a long signal, would you still take it? and likewise in case of a short, does this influence your view?

3) the ADR can be quite predictable for some markets, but less for others; this is however something each has to find out for his own in testing

Nevertheless, I'm pretty sure you have something there with the ADR and it's definitely a path worth exploring.

now worries FW

I trade FX only, no volumes, so no clue. Yes, ATR can be a decent indicator to bear in mind regarding an average daily move, which I never use, but like the concept :cool: . It is probably the most likely scenario in the absence of particular moves, news announcements, etc.

Regarding your question, well, really depends on the day. Say, the day starts with a narrow Asian range, breaks out, and moves some 100 pips on Cable, I would start thinking of tightening my stops if the average daily range is 120. it can give nice trending days like yesterday and give a nice 140ish hi lo range. If I see a flag or something of the like, definitely, will continue with the trade, if not add. However, having said that, I will do with knowledge that the probabilities start to go against you in such a scenario.

Edit: forgot to add, that it also depends on the time of the day. say, the move has happened before the US open, and i get a flag, then I will definitely stay. If it happens at the end of US, I will most likely close and wait for the next setup post asian session.

dont know if it makes sense.

j
 
Confirmation.

This thread is meant for discussing exit strategies.
A lot of people focus on getting the entry right (me included) but fail to put as much effort in timing the exit, while this part of the trade is as important as the entry.

This thread is about finding the best equilibrium between on the one hand not taking exits too quickly (letting profits run) and on the other hand not taking them too late (with price already reversing back to your entry point).

I look forward to discussing several styles and strategies and hope others can contribute in a constructive manner.

I will post some examples and charts myself later on.

To be honest, FW, it suprises me that you admit to having a slight weakness where exits are concerned. Your trades on the Dow thread point to a person who is very adept in identifying support and resistance and using probabilty.

Where to exit?

I suppose the answer depends on price action, it's behaviour at certain levels. Trend (if there is such a thing), plays it's role in determining probabilty, volume can give a person an indication of the 'interest' of certain levels and help with probability.

Does a person exit a buy where they think they will sell and vicky versa?

Confirmation may be a key word in this debate/thread?

Interesting though.:cool:
 
My oscillator based trading strategy (see blog entry no. 11) gives me clear exit rules so it's really a question of box ticking!

However, it does seem, from my understanding of it, to work better scaling out at different levels using 3 lots.

I hope this thread will be promising too.

F

The interesting thing about scaling out is that it doesn't necessarily mean your profits are bigger compared to NOT scaling out and taking all your profits at once. This depends on
- where do you scale out the last part of your position?
- what if after taking profit at the first target, price goes back to your entry point?
- what is the % of trades that reach your second target?

Situation 1
Consider for instance that 70% of your winning trades go back to breakeven after your first target was hit. The other 30% hit your second target. Suppose your first (fixed) target is 10 points away and (to make thing simple) your second is at a fixed 25 points.
Suppose we have a batch of 100 winning trades and we trade 2 lots:

- By scaling out:
70% hit target 1 then reverse back to your entry: 70 x 1 lot x 10 + 30 x 1 lot x 0 = 700 pt
30% hit target 2 after hitting target 1: 30 x 1 lot x 10 + 30 x 1 lot x 25 = 1050 pt
Total points = 1750pt

- Not scaling out:
We exit all of our position at target 2. We move our stop to breakeven after price has passed the "virtual" target 1 point:
70% go back to your entry: 70 x 1 lot x 0 = 0 pt
30% hit target 2 with both our lots: 30 x 2 lot x 25 = 1500 pt
Total points = 1500pt

Situation 2
Consider for instance that 50% of your winning trades go back to breakeven after your first target was hit. The other 50% hit your second target. Suppose your first (fixed) target is 10 points away and (to make thing simple) your second is at a fixed 20 points.
Suppose we have a batch of 100 winning trades and we trade 2 lots:

- By scaling out:
50% hit target 1 then reverse back to your entry: 50 x 1 lot x 10 + 50 x 1 lot x 0 = 500 pt
50% hit target 2 after hitting target 1: 50 x 1 lot x 10 + 50 x 1 lot x 20 = 1500 pt
Total points = 2000pt

- Not scaling out:
We exit all of our position at target 2. We move our stop to breakeven after price has passed the "virtual" target 1 point:
50% go back to your entry: 50 x 1 lot x 0 = 0 pt
50% hit target 2 with both our lots: 50 x 2 lot x 20 = 2000 pt
Total points = 2000pt

Situation 3
Consider for instance that 40% of your winning trades go back to breakeven after your first target was hit. The other 60% hit your second target. Suppose your first (fixed) target is 10 points away and (to make thing simple) your second is at a fixed 20 points.
Suppose we have a batch of 100 winning trades and we trade 2 lots:

- By scaling out:
40% hit target 1 then reverse back to your entry: 40 x 1 lot x 10 + 40 x 1 lot x 0 = 400 pt
60% hit target 2 after hitting target 1: 60 x 1 lot x 10 + 60 x 1 lot x 20= 1800 pt
Total points = 2200pt

- Not scaling out:
We exit all of our position at target 2. We move our stop to breakeven after price has passed the "virtual" target 1 point:
40% go back to your entry: 40 x 1 lot x 0 = 0 pt
60% hit target 2 with both our lots: 60 x 2 lot x 20= 2400 pt
Total points = 2400pt

Conclusion
I realize these are a lot of numbers... But depending on how much trades you have that travel significantly far enough scaling out is not necessarily to best way to maximize on profits as is shown by situation 3.

These examples are hence very dependent on two parameters
- the win% ratio of your system
- the offset between T1 (= target 1) and T2 (=target 2)

This thread isn't meant to go into the numbers in depth, I'm sure there are statistical methods to analyze which method yields the best results under which circumstances... Nevertheless I hope these examples will be helpful for those who are trying to improve on their strategy.
 
To be honest, FW, it suprises me that you admit to having a slight weakness where exits are concerned. Your trades on the Dow thread point to a person who is very adept in identifying support and resistance and using probabilty.

Where to exit?

I suppose the answer depends on price action, it's behaviour at certain levels. Trend (if there is such a thing), plays it's role in determining probabilty, volume can give a person an indication of the 'interest' of certain levels and help with probability.

Does a person exit a buy where they think they will sell and vicky versa?

Confirmation may be a key word in this debate/thread?

Interesting though.:cool:

I don't mind admitting my system can be improved on several points :) One of them is trying to increase the number of high probability trades and skip the lower ones. The other one is letting your profits run more, in my case "much" more. Nowadays I am still taking 3 to 5 trades a day on a single instrument, which I feel is too much. I have nailed some entries that went +100 points in the right direction where I exited +20 :eek: ... you sure feel stupid then ;)

Indeed confirmation... not waiting for confirmation will make you an agressive trader, but often having a really nice (and early) entry. Waiting for confirmation will put you on the safe side and decrease the number of losing trades, but will equally decrease the trade potential because the move will already be under way.

Anyway, I'll try and upload some charts tomorrow as I think that'll make the discussion less abstract and that way we can perhaps discuss some real life examples.

Your input on various threads has always been interesting, you seem to have a thing for raising the right questions at the right time, so I'm looking forward to going deeper into the matter later on.
 
Indeed confirmation... not waiting for confirmation will make you an agressive trader, but often having a really nice (and early) entry. Waiting for confirmation will put you on the safe side and decrease the number of losing trades, but will equally decrease the trade potential because the move will already be under way.

:) Yes, waiting for confirmation can drive a person mad at times, it can be agonising and the outcome can be downright nasty if a person does not have their wits about them.:LOL:

Good luck for tomrrow.
 
I don't mind admitting my system can be improved on several points :) One of them is trying to increase the number of high probability trades and skip the lower ones. The other one is letting your profits run more, in my case "much" more. Nowadays I am still taking 3 to 5 trades a day on a single instrument, which I feel is too much. I have nailed some entries that went +100 points in the right direction where I exited +20 :eek: ... you sure feel stupid then ;)
I have done the same, and look at the deficit on my account now. I've been in several trades which have moved at least +50 my way, and I've got out on a 2 pip retracement at +6 or something. I've then gone on to take an opposing position against the move, and managed to pick up the other ~30 odd pips the wrong way!
 
FW,

here you go,

this is my last trade....overnight. managed to take the hi-low range of day 1, and most of the following day:cheesy: all in 12 hours :cheesy:

this is the case of

a) a daily range
b) closing below above a key level
c) failure to bust it quickly
d) key trend support (not shown)

Instrument: Euryen. trade, +85 pips total (90 on 1/2, 80 on remainder several minutes after), entry on failure to follow through multiyear high, Key round number, supposed place holding significant stops. etc.

Is it an early exit. well that is relative, overall trend is up, this could have some 50 to 80 pips more to go, I am going on holiday, and rather take the pips upfront rather than wait and sit through a pullback or possible rejection.

j
 

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Is it an early exit. well that is relative, overall trend is up, this could have some 50 to 80 pips more to go, I am going on holiday, and rather take the pips upfront rather than wait and sit through a pullback or possible rejection.

j

That does seem like a very good trade to me! Nice one.
This is also a typical example where I probably would've exited much too quickly (have a look at attached chart) but all depends on what is an average move for that instrument on that particular timeframe.
 

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That does seem like a very good trade to me! Nice one.
This is also a typical example where I probably would've exited much too quickly (have a look at attached chart) but all depends on what is an average move for that instrument on that particular timeframe.

thanks FW

to be honest, I was asleep :cheesy:

woke up to see the profit, and just rode it. didnt really care much since i brought the stop to BE rather quickly, and new it was countertrend, so not much to say. the stop was initially 20 pips, then down to 10 pips, so a good R-R ratio.

anyway, off to bed. got to drive to Bretagne and eat oysters till I flop.

till next week. like the thread.

j
 
Anyone use the the value area based where 70% of the previous days volume took place. where the volume action was of the previous days activity.
 
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