Discussion in 'Trading' started by lojze, Feb 21, 2002.
Can anybody explain more about exit strategy, if I am in profitable position?
Sorry I did not have time to write a book on all the potential answers to this question and I am sure my fellow trading brethren will jump in and add something more substantive to my Steve Miller quote.
You could try a set of moving averages as trailing stops when you are in profits. For example, 10 MA for quick moves and 20 MA for more gradual moves.
When discussing exit strategy you need to consider reason for entry, reason for stop, and original target for your trade. If you are trailing stops there are several ways to do it. Moving averages on short term charts, price support/resistance, monetary trailing stop, or other market factors. To define your exit strategy you need to define your entry strategy. If you offer more details on your reasoning for entries I will go into detail on possible exit strategy.
Whatever you use, MA's, percentages, targets, trailing stops, etc., be sure to systematize them and then follow the system consistently. It'll help avoid letting emotions and false patterns interfere with the trading and help to validate or invalidate your method.
There are plenty of strategies for exiting, really could be entire book... I'll describe mine.
Strategies for scalp and day trades exit are different. Scalping is very subjective animal, let me talk about day trades only.
General rule is, hold through slow climb, sell/partial out on vertical stage with volume/pace spike.
As stock moves in my favor slowly I hold it and move stop to breakeven when risk/reward went over 1/1. After this moment I want to sere first spike to dump 1/2 shares into, usually hunting for 1:2 risk/reward. If this first spike was too big serving 1:4 for instance I would dump entire position, or at least 3/4 of it. If stock consolidates after first spike and goes for next breakout I trail the stop for shares balance, using principle: Former resistance becomes new support.
In practice it looks like following:
Stock triggered entry at 20 with stop at 19.75. It paused at 20.25 giving me new consolidation at the resistance level. My stop went to 19.95. Breakout of .25 and stop is breakeven now. Spike occured at 19.45 where I sold 1/2 shares. Stop moved to 20.20 because 20.25 became new support and I want to get out if this support is broken. New consolidation, breakout of 20.50, pause near 20.75 and my stop is moved to 20.45 - the same logic. As soon as stock went vertical I dump another half, or if I feel real strong about continuation, 1/4, trailing the stop for last 1/4 by the same principle.
I am daytrading NASDAQ stocks and my entry is based on candlestick patterns and support and resistance. I am not using Fibonacci yet.
So, any good strategy to follow for exits?
Or, even more important, am I missing something in entry strategy?
Your exits (i.e., stops) will depend partly on your timeframe and also whether you try to mitigate position risk by taking partial profits at some point (if you do that, you can generally use larger stops to give the price action sufficient room).
Those on the swing trading timeframe, the stops would generally be a combination of support/resistance and stop movements based on risk management. Some traders like to throw in a Donchian channel or Parabolic SAR.
Since scalping is daytrading, but daytrading is not necessarily scalping it would help to understand your daytrading style.
Ultimately the goal is managing the risk of the position while letting it move as far in your favor as possible.
I think there are two conflicting themes at work in daytrading. One is to maximize winners, and you do that by taking profits quickly before the stock has a chance to retrace. Two, you want to hold on to the big winner as long as possible. Some try to do a little of both by paring out a portion and holding the remainder. Others try to determine the likelihood of a big trend day and adjust their exits accordingly. A third approach is to trade the futures as well and try to hold them for the big move.
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