How to Define Exits?

So I figure I've got my entries sort of sorted out these days. This also makes it easy to define when to get out when you're wrong.

However, I find getting out when in profit is much less black-and-white than being proved wrong on a trade since profits are technically allowed to be unlimited. Any help on better defining your exits would be very much appreciated!

I figure this could also make a good topic to discuss exits in any strategy on any time frame, too. It doesn't have to be limited to any one style/strat, just exits in general.

Ok, so the topic might need a bit of a push to get started.

My current entries can be very specific. I mentioned this is not the case for exits, but there are still things you can look for. For me, the main driver of an exit (at this time) is simply the "end" of the current move (though how you determine this is part of the reason for the thread).

Anyway, how do you tell the move "ended"? I think this has a lot to do with your time frame. The 5m chart might show that buyers/sellers are moving in against you, but your 1h says this is just a short-term move. You could then theoretically take the 5m exit, wait for it to conclude, then go back in again for a better price. The usual way to do it is to simply hold on, check that the 1h trend is still in effect, and keep going until conclusion is displayed on 1h.

Of course, this is just my take, which could be completely wrong.

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That's one way to do it. I presume some have specific profit targets (say 50 pips, 5% on a trade, or maybe $500) that they take no matter what. Some might go by pattern instead (candle formation, trendline broken, momentum puttering out, etc.). Then there's always fundamental players who don't budge because fundamentals haven't changed, etc.

But the thing is that none of these are clear-cut, and can depend on the strat you're using. If you're a day trader, I doubt you'd make any decisions without a DoM (if applicable), and if a position trader, I doubt you worry about support and resistance the same way a day trader does.

Another example is, maybe you're looking to make 100 pips on a 10 pip stop. Or maybe your strat is 50/50 divided between stop/tp length. Or maybe you look for trades with a high expectancy of providing the kind of return you're looking for? Plenty of ways to see it.

So the thing is, when do you say "enough is enough, I have to book profits here"? I'm trying to wrap my head around the concept. Why is it that entries can be so specific, but not exits? It's confounding!

Try using a 20ma as an exit indicator. This is as good as any way to tell and it's useful no matter what time frame you are trading on. A suggestion would be when you are in profit equal to your stop loss then use the 20ma as a trailing stop. If price goes beyond it or a candle closes closes on the other side of it then you can exit. You can experiment a little or try using a different ma to find out if you like it. I have found that using anything less than 20 tends to get you out too early and then the move continues.

Remember if you do end up getting stopped out early you can always reenter the trade if your initial entry parameters are still valid.

Peter

A very rough rule of thumb is that I move my stop to a point that I cover my costs and make a small profit as quickly as the market allows, with the ES it is the smallest increment (0.25 points). I generally only enter a trade in which I am certain I can do that and it has taken years and years of study and practice to refine my judgement. I don’t use DOM at all BTW.

Thanks for the suggestions!

@NT: I also have a point where I move my stop to B/E or +1 pip, but this is based on whether the trade is gaining traction or not. I won't move it up unless I'm certain the move is about to start giving me pips.

It's certainly good practice to lock in even a minimum of profit. This way, even "failed" trades can help reduce the impact of losses/commissions/etc.

I've been using S&R levels for a while now. Most of my trading is on H4, and I target levels found only on the Daily. I ran a 6 month test last year with those kind of exits, and it worked quite well, if you're prepared to accept you can't exit at the exact end of the trend.

I exit part at the 1st level, then the remainder at the 2nd level. I found through extensive backtesting, that hitting the 3rd level was quite unlikely. Though to be fare, that may be more a reflection of my stop managment technique than anything else. Anyhow, I like this method, because I can be consistent with it.

In theory, whatever TF I was trading, I would target levels on the next TF above. Though I admit I haven't tested that theory, but it's an idea anyway.

Also I may not chose to enter if my entry price puts me too close to the next level, as price may well bounce there.

Nice to see a topic about exits on T2W. There's far too much talk about entries, when it seems more talk about exits and risk management would be useful.

its not how you start its how you finish......

http://www.trade2win.com/boards/for...117416-best-exit-strategies-forex-market.html

new_trader said:

A very rough rule of thumb is that I move my stop to a point that I cover my costs and make a small profit as quickly as the market allows, with the ES it is the smallest increment (0.25 points). I generally only enter a trade in which I am certain I can do that and it has taken years and years of study and practice to refine my judgement. I don’t use DOM at all BTW.

Click to expand...

interesting....on my faster systems if I get a decent bar up on pips (15m TF and above) from entry point then theres no way I am gonna lose on it and go to B/E.....if its right its right

N

wackypete2 said:

Try using a 20ma as an exit indicator. This is as good as any way to tell and it's useful no matter what time frame you are trading on. A suggestion would be when you are in profit equal to your stop loss then use the 20ma as a trailing stop. If price goes beyond it or a candle closes closes on the other side of it then you can exit. You can experiment a little or try using a different ma to find out if you like it. I have found that using anything less than 20 tends to get you out too early and then the move continues.

Remember if you do end up getting stopped out early you can always reenter the trade if your initial entry parameters are still valid.

Peter

Click to expand...

agreed.....lovin that 20

@Geo: Yes, I've been using S/R too, though I've found that this doesn't work for all types of trades (let's say you're playing a breakout... The level it can go to after is very subjective). It's great for trends, though.

@NVP: Lol, nice thread. I figured there'd be one around here somewhere, but didn't find anything.

Anyway, some good ideas in there, but nothing that immediately clicks with me. I'll keep looking & experimenting.

VielGeld said:

Thanks for the suggestions!

@NT: I also have a point where I move my stop to B/E or +1 pip, but this is based on whether the trade is gaining traction or not. I won't move it up unless I'm certain the move is about to start giving me pips.

It's certainly good practice to lock in even a minimum of profit. This way, even "failed" trades can help reduce the impact of losses/commissions/etc.

Click to expand...

I trade with a very close stop, so I know whether I am right or wrong within seconds of entering my order. None of that edge of my seat "managing a trade" nonsense...that's only for the fools who use wide stops.

^ I do the same very tight stop thing (3 pips for me). It's good to know if your trade is wrong immediately or not. You can always re-enter as Wacky said (there was also something said about "re-entry" in NVP's thread which is an interesting concept).

I think I'll go with a fixed R:R target for a start and stick to it. Only select trades likely to hit target, which should increase win %. It's simple, mechanical, and defined. Something like "wait until it hits the lower B-Band" is perhaps more likely to produce profits, but it might skew the kind of entries I look for.

I've seen some good ideas in here, keep e'm coming! I think throwing around ideas is more important than what someone specifically uses. A bit of creativity, management, and discipline should produce something interesting. I'll see if I can't settle on a set of idea that provide good results.

3pips stop? :| I think you should keep your stops very tight, but not so tight that it ends up increasing the average size of your loss or the frequency of your loss at the expense of good trades. The first part of that sentence may sound strange, but not in my experience.

For taking profits, I analyse my entries and how far they typically go before stalling and either reversing or continuing. You get a rough idea (within reasonable error) how far it is likely to go. I look to take partial profits at this level, which is a fixed level, and then exit the rest based on my reading of price.

I think it all comes down to how well you understand where price is going and where it will have problems. And that's much harder than initial observations on what seems like a good entry.

I also think that current volatility should be a factor in both stop and target.

Shakone said:

I also think that current volatility should be a factor in both stop and target.

Click to expand...

Quite right.

And yes, too tight and you'll just get stopped out by random movements. Then again, only selecting trades likely to immediately go in your favour makes it work, too.

In any case, the "rough idea of how far it will go" isn't good enough for me right now, but it's probably the only real way to do it. I can tell what to expect given the trade and volatility, but I'm sometimes way off and I either hold on too long or miss out on a big move. But that's a quandary for every trader, isn't it?

I suppose all it comes down to is screen time as you say.