Is an exit strategy the true holy grail of trading? Do you think exits are far more important than entires? I am trying to come up with some hard and fast rules for exiting my trades. The aspect of trading that is the toughest for me is to ride my winners. Do a lot of you fellow traders use trailing stops when exiting a trade? I don't really care for scalping so I guess you would call me more of a positon daytrader. Just looking for some input from my fellow traders.... Leland
How come you don't like scalping but don't like letting your winners run either? What is it that you like?
I am not a position trader, so I do not feel that I can advise you in this way. FWIW, the only criterion I use to get out is, if at sometime during the trade, I would not take the trade at that time. So, if I wouldn't get in the trade at this point, why would I stay in it? Sometimes the trade will go against me, and I still am in the trade because I would take the trade at that point. It is not so much based on P/L, but on risk control, tape reading, and does the reason I got into the trade in the first place still true? I am a hard core scalper. I do not know if this "style" would apply to your frame of reference. nitro
I like letting my winners run I'm just not very good at it sometimes Need to get over my mental block I guess!!!
or you could try to get back in, if the move is really strong, you sometimes get another entry point right after the exit. No shame in that
No an exit strategy is not the holy grail. It is one piece of a trading strategy that can give you the edge if it has a positive expectation. If you only enter into losing trades you will have a hard time making anything but a stop loss. The holy grail is the combination of the right trader's psyche with the edge. If you are position daytrading then positioning is important for both your entries and exits but direction is equally important. If you scalp then positioning is most important. Trailing stops will only lose you money. I have been there and done that. They are a sure bet to lose you x amount off of your open profit. They will get you out at the most inopportune times. The times they get you out nicely, you could get youself out nicely and often BEFORE your trailing stop is hit. If you need a trailing stop, keep a mental trailing stop then exit before it hits this level. Developing that skill (protecting your open profits) is better than learning to trade with a trailing stop.
LelandC, One approach you might consider is scaling out. Let's say you're long 500 shares, and you'd like to get 1 pt out of the trade if possible. If things are moving favorably and you're up .50 then sell off 200-300 shares and let the rest run (meanwhile moving your stop up to breakeven). Then, worst case, the stock reverses and stops you out of the remaining shares but at least you booked some profit. Sure, in this example, it would have been more profitable to sell all 500 shares at .50 but you didn't know it was going to stop climbing there, and you didn't know it was going to reverse..... Besides guaranteeing yourself a profit, you also allow some shares to be active in case the stock continues to move favorably, maybe closing the trade if it hits your 1 pt target. Again, you'd rather have sold all 500 shares at 1 pt but you didn't know it was going to make it that far, and it just might have gone up only .50 and then reversed. :eek:
This is my observation based on ES. After you are positioned in your profitable open position, the exit is far more important than the entry. The rules of exiting that I use are not hard or fast except that once a profit has gone x in my direction I will take a profit out of it and not let it turn to a loss. Exiting well is probably a harder discipline to learn than entering well. I look at objectives. For instance if we are breaking above a congestion area look for the market to go 2x the height of the congestion area. Identify when the market is hesitating at a previous intraday high or low (might be forming a double top or double bottom) +/- 1 tick. If it can't continue through chances are the move is over. If you are in a big trending move it takes time for the trend to get reversed. Typically a double test must form to reverse it. The best bet is to form your own ideas about how far moves typically carry that are specific to the market you trade. Key questions to ask: How long do they last, how far do they typically go, what counter formation typically causes the market trend to reverse, how much of a pullback are you willing to ride through in an open position. I scale out of my position, taking the first exit when I feel that a market correction against the trend is imminent, and then evaluate my "runner" position(s) based on how it is trading.
You will really have to use trial and error when learning to scale out of positions. I started off with a hard and fast profit target, but determined that by doing this I was leaving the majority of my profits on the table. So I switched to using my feel for when the market is about to react to exit the first position. I find that quite often my first scale out is more profitable than my subsequent scale-outs. The drawback of scaling out this way is that if you enter a bunch of trades that are only marginally profitable, you will end up not taking a small profit and taking a loss on the full position more often than if you use the scale out variation that Magna talks about. You may have to do some experimenting and examine your trading records to determine which type of scaling out will produce the best results for you.
its only a mark until you sell it. this is something my friends and i say when we are facing a loss in a stock. but more seriously a general rule i try to live by is as follows: when the reason i got into the stock changes or is not there it is time for me to get out. while this is a general idea it has a lot of merit and has saved me many times. i am not a position trader so it may be different for you. i hope i helped, good luck --g--