I Need A Good Exit Strategy

Discussion in 'Trading' started by LongShot, Dec 2, 2002.





  2. Try SAR, good also for entries, in fact I have a sound trading set-up that uses SAR for entries. Now, how do I exit? Well, I want to get a decent reward to risk ratio, SAR determines the risk so if I want this ratio to be, say 2, I know where to exit. If things don't work out as they should (you need to know what it means and when this happens) I exit sooner.

    However, here an even simpler exit strategy that is more compatible with you trading personality: when you panic...:D
  3. This depends on your system

    first is the reason you got into the trade still around?

    Do you trail a stop?

    Most of the short term systems I do have a high probability of working when I enter but the longer I let them run the more of a chance for a reversal.

    Maybe ATR?
  4. Ditch


    I'm also strugling with this. At some point i decided to exit at 3 pts
    (NQ). when it's choppy this works great, when it's trending not. The best solution imo is to partially exit, then you get the best of both worlds. first exit at predetemined number, let the second part run using a trailing stop, tightening it when profits increase.
  5. rs7


    This is my main criteria for an exit. I try to never exit a trade without trying to take into consideration if I would be entering the trade under the same circumstances (same time).

    This is the crux of the "let your winners run" theory. That is to say, essentially, exit a trade when there is a reason to exit. There are generally more factors to convince me to exit a position than there are to enter, so I have never found exiting to be a problem with day trades. With overnights (which used to be my bread and butter but now are a small % of my trades), it becomes more complicated. Many more factors come into play.

    Without getting into exits on overnights (most people at ET seem not to get involved heavily in this strategy), I would go with RTHARP on this one exactly. Stop and analyze your position. Make a determination if you would enter the trade at the moment you are considering getting out. If you would enter, then don't exit. Secondly, I would ask myself what has changed since I entered. If the issue (I trade stocks, not indices) has not gone against me and the market, sector, or futures have gone in the opposite direction that I had hoped, then I would consider the issue relatively strong, and remain in it. Even if it has gone against me slightly I would tend to remain in the position if it remained strong relative to the other indicators I watch (we all have our own).

    Exits....no matter what, if the issue spikes dramatically in my favor, I will sell into up movement or cover into down movement on shorts for a win that I know almost with certainty will pull back (or bounce on shorts) and so I am quick to grab a profit.
    If, however a dramatic move goes against me, I will not take the over-emphasized loss for the same reason I WILL take the profit. I would expect a bounce on a long and a pullback on a short. At which time I will get out at a reduced amount of damage. This reversal of dramatic spikes is probably about the most reliable reaction we can anticipate. A good number of traders I know make a living fading only those dramatic moves. They are the most patient and disciplined traders in general. Their trades are often few and far between. But they make up for it with size.

    One thing I must say that validates my style and process of dealing with it. That is that I tend to trade many positions at once (a good reason for not trading indices). So if I am primarily long (for example), and an issue makes a dramatic move either in my favor or against me, it is unlikely that it will affect my overall positions greatly. This does enable me to, on occasion, add to a losing position (not a strategy I normally would recommend). The conditions that warrant this are as follows. Let's say I am carrying 20+ long positions. One of them suddenly drops a full point on one tick. If I see the spread open up again, I will "bid the bid". I am looking to average down, and though, as I said, I would not suggest this under normal circumstances, because it is perhaps less than 5% of my long positions,and I am expecting some kind of "bounce", then if I add to the position and get any bounce at all, and exit on that bounce, I will have diminished the loss. (I am exta quick to get out if I am not immediately rewarded...so this is a tricky and risky strategy. I only mention it because it is something I do, but something I could easily abandon).

    It is important to understand that what I do is effective for my style of trading. If I were to trade one or two issues at a time, or if I were trading index futures, I would probably never "average against". However, as I understand the futures market, though moves may be fast, the kind of spikes due to widened spreads like you see in stocks is not something that becomes an issue. Certainly a sudden movement has a very similar effect, and my expectation of corrective bounces or retracements after a sudden move are also likely, it is not something I personally deal with. So my advice really applies to my "style" of trading. I would not presume to extol the virtues of this strategy to a style I am not familiar with. So your question really should include a bit more information. Specifically, what style of trading are you doing, what are your normal objectives (win/loss expectations), etc.

    But in virtually any style of trading, rtharp's contention remains valid. If you would be entering the trade, or even considering it, why get out? I always maintained that a good reason must exist for exiting. Just as for entering. NEVER make a trade out of boredom. Never make a trade because you feel the need to "do something". Watching and waiting is hard work. But it is the most necessary part of our jobs. And requires the ever stressed "discipline". Nothing is more important.

    Having said this, I understand many traders have a "profit target". Though I never was a fan of this approach, I understand it can and does work for many traders. Problem, to me, with this, is that it MUST go hand in hand with a "maximum loss target". And it just seems so terribly hard to truly control your losses so accurately. Stop orders don't guarantee that your loss will not be greater than you want. Watching the market and staying vigilant won't always help (but it is the best way to control your positions IMO) . I always assume my losses will be a bit worse than I hoped, so to compensate I try an let my winners go.

    If you could somehow enter orders that would effectively guarantee (for example) that your wins would close out with a $1 profit, and your losers with a $.75 loss, it would be easy. But reality is a different story as we all know. And stop orders (hard stops) so often backfire. And trailing stops (if you can enter them....not all platforms do) are, to me, just a way of avoiding making a real decision.

    I hope this is not as muddled as it looks having re-read it. I realize that it applies to my style and may not to others. But, again, different styles require different tactics. So I can only address your question in the context of my own style. Rtharp stated the same thing...."depends on your system". You will hear the same response from any experienced trader.

    Good luck.

  6. Just figure how much you are down, and hang on till you are even plus commission plus a small gratuity for your service to mankind.

    I currently need about 134.5 points on this next trade (133.5 if you leave off my cut.)
  7. forgot I already replied, (phone rang, daughters fish is sick)
  8. Common exit indicators are

    1. Parabolic sar, that's what it was designed for. It gives you a wide stop at first to get the trade off the ground and then narrows up over time.

    2. N price channels or Donchian channels. The idea being if it can't take out the other side the trend is still in place.

    3. Bollinger bands. Use the upper if you are long and the lower if short for both profit target and stop loss. (This is a one contract idea until yopu get the hang of it.)

    4. Crossovers, ma or dmi. Ah, don't want to get into it.

    5. Probably none of them beat a straight trailing stop.

    6. Fixed profit target. My personal favorite. This is the same tactic Wal Mart uses. They set a price, and if it gets hit, they exit ownership and some poor unlucky sap gets stuck with it.
  9. prox


    Think of what you would do if you were on the other side of the trade. If you see an good entry signal for a short (if you were in a long trade), then that would be time for you to get out.

    Otherwise, run a trailing stop below/above the most recent swing.
  10. u130747


    You say you want a good exit strategy. So you want to know when to pull out before you blow your wad. Sounds familiar. When you get really excited and you get that feeling, SELL..

    Bert:D :D :D :D
    #10     Dec 4, 2002