Looking for Exit Strategies

Discussion in 'Trading' started by Hitman, Sep 5, 2001.

  1. Hitman


    After going 15 for 25 and still managed to lose the game (something I didn't imagine possible), I have one question which is probably the hardest of all in day trading:

    When do I take the scalp and when do I hold on for the ride?

    Obviously, there is no easy answer to this, or we will all be rich, I would like to hear how people exit their positions, more or less the "rule of thumb" . . .

    Stops are easy enough, so is taking a small loss, the toughest part is "letting winners run". I know it eventually comes down to experience and gut feeling, but any tips will be helpful.

    Here is mine from aggressive to passive (I am using long side as the example):

    1) Direct Plus into the BID, I want out immediately, market reversed, index reversed, news came out, large offer showed up . . . I want out, I don't want to risk any slippage.

    2) Sell market or offer out limit, like when something ripped half a point on weak volume . . . I want out with a decent price, no rush, but I want out.

    3) Stop at the BID, lean on the BID, he hits the BID at all, I am out, usually used on a large BID toward what I believe to be the end of the move.

    4) Stop 1 cent below the BID, many times, when the market/index rips, I use this against a decent sized BID, if the stock does what I believe it should do, it should not trade below that BID. I use this a lot upon entry's . . . Versus 3), this is a lot less vulnerable to specialist games like selling 100 shares into the BID and triggers your stop, but many many times if the BID does get whacked you will take heavy slippage, hence the risk.

    5) Below the low of previous 5 minute candle, when I want to swing something but don't want to give too much room.

    6) Below the 20 SMA (mid band on the BB), when I really want to swing something but the stock seems to be consolidating a little so I want to give it a little more room.

    Paring out: I do this when the stock trades far above the stop of 5) and 6), say half a point above my chart based stop, or any time when I feel uncomfortable. It is typically done through 1, 2, 3 or 4 with a portion of the shares.

    What I look for: Size BID preferably stepping up, size prints taking out at the offer. Volume, volume, volume . . .

    ***All of my work done on 5 minute charts and TOS***

    Now, the question is when do I use a tape based stop and when do I use a chart based stop? I remember several times a very good trader would say "Hold the SOX stocks all day", and sure enough, it trends, consolidates and closes near its high.

    Under what circumstances would you consider holding on to something for a swing of more than 1 point? How do you determine the strength of a trend? If you have exit strategies please post them here!
  2. Hitman,

    Great topic (as usual), dude! This is one of the hardest aspects of trading for me.

    I would suggest the following:-
    Have in mind a perceived downside risk to the trade, based on ...
    a) the size of the spread
    b) the action of time and sales, including the extent of institutional block purchases and the behaviour of the NYSE specialist (or the AX for Nasdaq issues)
    c) Technical support from the intraday chart

    Trading is not a science, it is but an art that pretends to be a science. So I suggest that you make a subjective aggregation of everything in a) to c) in order to define your risk.

    The next step is to run your profits. Once you have obtained in profits what your perceived risk is on the trade, protect that profit with your life (but know when to break this rule :D ... i.e. if you are totally convinced that the trend is so strong that eating into your profit earlier will be worth it later). Any profit above that is a bonus, and will lead to a greater than a 1:1 risk:reward ratio.

  3. Commisso

    Commisso Guest

    "Trading is not a science, it is but an art that pretends to be a science. " excellent statement candle :)

    Hitman, you mentioned the 20sma as a trailing stop on your intraday swings....I have been using the 8-13-20 ribbons as trailing stops for a long time....depending where im @ reward wise on a winning position I will choose one or the other if I feel there is potentialy more of a move left.....for example if im up 1R and the position looks like it has much more to go I'll use the 20ema.....If im up 5R then I will wait for a blowoff/climax or the 8ema to be taken out.....

    I can give a perfect example of what candle said in the previous post...yesterday morning I entered vrsn and nvda short around 9:45 or so...I attempted to use the 20 on both to keep me in the trend until I got some kind of capit or strong reversal signal....on NVDA I got stopped out very early near my entry for a scratch @ 79 or so, it later went on to hit a low of 75.50 :(.....on VRSN it worked perfectly and kept me in the trend until I got my blowoff I was waiting for and I was able to cover at 34 for one of my biggest R-gains in months....

    As Candle said this is art not science....

    You said that you have a problem knowing when to take a scalp and when to let it ride...IMO you should know before you go in what you R/R objective is on the trade....Know before you go in whether it is a scalp or a swing, and then have no bad feelings whatsoever if your objectives are met on a scalp and you later see it could have been a big swing...and vis a versa...if you wait for a swing and it only offered a scalp do not feel bad about not taking your profits early....As an example of what I am trying to say, remember the CLS set-up I put on the boards over the weekend, I got what I wanted out of that trade (5R in an hour) when I got in I knew what I wanted and knew when and how I would cover....I cant go back and look at it now 4 days later and say damn I could have gotten 8 more points....

    PEACE and good trading,
  4. Magna

    Magna Administrator

    Trading is not a science, it is but an art that pretends to be a science.

    I agree with Commisso. One of the simplest, concise, accurate, most profound statements i've yet to see on these boards. Not to take away from anything else you post candletrader, but very well said!
  5. I agree.
    Candletrader's statement is one of the best statements ever written on this board.
  6. dozu888


    Have to butt in with a different opinion.

    Trading is not science because you do not know how to "digify" it. You trade with "art of gut feeling" and you are successful, so you assume it is an art. Answer this question: is your success due to the art? or due to the fact you can stick to money/risk management discipline? will you be making more profit if you can systemize your trading approach? There are so many ways to make money, which way is statistically the most robust ?

    Playing chess used to be an art, until Kasparov got beat by DeepBlue.
  7. Thank you Doju for these comments. I treat money/risk management as a subjective art, so I still regard trading as an art ... but art within fixed parameters, not totally unrestrained. I am a discretionary trader, but I am sure that there are systems traders out there who can adopt a purely scientific approach and be successful.

    I should have qualified my statements with the phrase "in my opinion". And you are very correct to allude to the fact that people can trade in a scientific way if it suits their personality.
  8. Hitman, great topic!!!

    Here I go again...you all are going to think I get kickbacks from this guy, but no, I don't. SO....

    Get one of Van Tharps most recent books. He spends a great deal of time on exits. I have found that his methods work prety well for me when I apply them correctly...the same may be true for you.

    And really, I have no connection or other relationship with Tharp except that I use some of this methods.

    Best regards,
    Jim ~air
  9. Commisso

    Commisso Guest


    I have to respectfully disagree with your statement.....

    My trading is without a doubt an artistic expression, primarily because I treat it as such. For me the thrilll is not in the desired outcome (money), for me the thrill is in the journey, the process, the tao, evolution, the refinement of my spirit my discipline my mentality. I have learned things through trading that have literaly transformed the way I live my life.......

    Is there science involved? Without a doubt! My money management, my understanding of probabilities and expectancy, etc. are the very foundation of every artistic expression I make within the markets, but that is just the foundation.....

    Without the artistic process of my trading, I would not be half the trader I am.....And I sure as hell would not recieve as much satisfaction from it...but at the same time as you said, a big part of my success is due to science...

    Was there science involved in miles davis's "kind of blue"?, Miles Davis had a superb understanding of the science, the fundamentals of music and jazz....But to say that that song was the result of science would sound quite redicolous right?

    PEACE and good trading,
  10. <i>It's Art!</i>
    <i>It's not...</i>
    <i>It's Art!!!</i>

    I say it's porn.
    #10     Sep 7, 2001