Exit methods for trend-traders

Discussion in 'Strategy Development' started by Cutten, Mar 31, 2005.

  1. A lot of people on here talk about trading with the trend. My question is what method do you use for exiting? The most consistent one seems to be a wide trailing stop, either a certain multiple of the ATR, or beyond a meaningful support or resistance level. Do any trend-traders use other exit methods, and if so could you describe them a little?
  2. good question... I've been meaning to ask the same. I've used EMA before. I want to capture majority of the big moves, and I felt this did it... but left too much money on the table. Now I use parabolic stop for a trailing stop. It performs much better. It gives prices plenty of room and after the move has matured the trailing stop charges in leaving very little on the table. Seems to work well for me, but problem is... parabolic stop doesn't know when I enter a trade.

    So I too am wondering what other available trailing stops there are. I heard ATR's are good. I tried to test with it, but somehow it wasn't giving price enough room for growth so I ditched that idea.
  3. mogul


    one simple rule I have found works well to get out of medium length swings is the 3 bar break.
  4. Targets Stops or Price structure. :)
  5. Markus


    Basically there are only four exit rules:
    • A fixed dollar amount (e.g. $1,000)
    • A percentage of the current price (e.g. 1% of the entry price)
    • A percentage of the volatility (e.g. 50% of the average daily movement) or
    • A time stop (e.g. exit after 3 days)
    We all know that a fixed dollar amount is probably the worst choice as it doesn't reflect price levels and the volatility of the market.

    But if you used the exits 2 and 3 and didn't receive the results you wanted, try the time stop. Sometimes this exit rule helps to improve your system's performance.

    Hydraace likes this.
  6. If you have to ask, it seems like you are having problems with "the Trend". Simply get out when "the Trend" tells you to.
  7. Can you explain a bit more how you calculate and use a parabolic stop?
  9. And what does "the Trend" have to do to tell you to get out? You are just restating the question.
  10. Not really Cutten. From the recent threads, one could say that "the Trend" is something like a fairy. I wrote that indeed I use decision variables in my approach that I could start labelling trend1, trend2, ... . After all, not a bad name. Anybody putting together a rigorous trading method will pass through the same door. Chances are that our individual decision variables will be very different between us.

    I have never been able to come up with any valid strategy if I did not treat my entry and exit policy as a whole under my decision variables. Exit policy is very much related to the trend variables I put to work. Often one of these trend variables will control exit almost directly. This is in essence what I meant.
    #10     Mar 31, 2005