Simple and Effective Exit Trading Strategies

Make sure to conduct your own due diligence before trading, and never trade money you cannot afford to lose. Crafting an exit strategy is the ultimate opportunity for you as an entrepreneur to reflect on your successes and challenges. An effective plan will enable you to approach retirement or further career ventures with clarity—free from any unfortunate surprises along the way—by properly disposing of assets in advance.

• Trading in the direction of the overall trend with a simple entry strategy while using the ATR keeps you in the biggest move on this chart.
• Modern markets require an additional step in effective stop placement.
• This can be achieved by thoroughly studying a stock for several days before actively trading it.
• She has worked in multiple cities covering breaking news, politics, education, and more.

But as soon as the move halts, reversal traders and Bollinger band traders jump in and load up in the other direction. As fast as the Eurodollar falls, it reverses, potentially wiping out your open profits. The trailing stop is probably the most emotionally successful way for a trader to manage a profitable trade. Finding the best entry point can take many hours and traders can sometimes put too much focus into it and end up taking bad exits. We’ve put together a list of some of the most commonly used exit trading strategies to help traders come up with a fully crafted plan. An exit strategy complements your complete trading strategy and ensures you practice proper risk management techniques and trade management skills while helping you become a more profitable trader.

Fundamental exit

Creating an exit strategy will provide you with a plan that’s ruled by your long-term goals instead of emotions. It’s a stop loss that trails the market, moving higher on a long position or lower on a short position as the market price of the asset being traded moves. Trailing stops are effective because they allow a trade to stay open and continue to profit as long as the price is moving in the investor’s favor. This may help some traders cope psychologically with volatile markets. Shrewd traders maintain the option of closing a position at any time by submitting a sell order at the market. Modern markets require an additional step in effective stop placement.

If the market price climbs to $10.97, your trailing stop value will rise to $10.77. If the last price now drops to $10.90, your stop value will remain intact at $10.77. If the price continues to drop, this time to $10.76, it will penetrate your best stock exit strategy stop-level, immediately triggering a market order. Reversal candlesticks through the high or low of the band is a sign to take profits or tighten stops. Price above the bands may have you tightening the stop loss closer to current price.

Stock Trading

You should read and understand these documents before applying for any AxiTrader products or services and obtain independent professional advice as necessary. When you understand your system, you’ll know how much profit the trade is capable of making. You can then manage the trade in a way that seeks to maximise profits.

What Are Trailing Stops Used for?

This is a daily chart of crude oil and I’ve highlighted two areas as an example. Let’s say you enter the first trade due to the momentum move down that wiped out the previous 10 days and you want to get into a potential move lower. Losing trades are a part of trading that you will learn to live with.

How to Exit a Trade

Although it can happen sometimes when the trend move is really strong, I haven’t a good experience with this. My trading journal provides a lot of statistics that most of my trades never moved much longer in my favor when they reached the target area. Support and resistance can also be used to exit using take-profit order. Support and resistance levels can be used to establish your price targets – the points at which you are willing to open or exit a trade.

Larger positions benefit from a tiered exit strategy, exiting one-third at 75% of the distance between risk and reward targets and the second third at the target. Place a trailing stop behind the third piece after it exceeds the target, using that level as a rock-bottom exit if the position turns south. Over time, you’ll find this third piece is a lifesaver, often generating a substantial profit. Let’s imagine that stock CFD X makes a series of higher swing highs and higher swing lows. In a while, the price of asset X demonstrates a lower swing high and lower swing low.

Trailing Stops

For example, if the market moves against your position, having an exit strategy for losing trades will prevent the “hope and pray” method of trading. Slow advances are trickier to trade because many securities will approach but not reach the reward target. This requires a profit protection strategy that kicks into gear once the price has traversed 75% of the distance between your risk and reward targets. Place a trailing stop that protects partial gains or, if you’re trading in real-time, keep one finger on the exit button while you watch the ticker. The trick is to stay positioned until price action gives you a reason to get out.

Our sample stock is Stock Z, which was purchased at $90.13 with a stop-loss at $89.70 and an initial trailing stop of $0.49. When the last price reached $90.21, the stop-loss was canceled, as the trailing stop took over. As the last price reached $90.54, the trailing stop was tightened to $0.40, with the intent of securing a breakeven trade in a worst-case scenario. There is a yellow line starting at the far left of the graph, and it moves from left to right across the graph, slowly moving in an upward direction. A vertical dotted line starts from the end of the yellow line with the word “Current” at the bottom, even with the x-axis. A yellow circle appears at the end of the yellow line and a horizontal white line grows out of it from right to left.

The added protection is that the trailing stop will only move up, where, during market hours, the trailing feature will consistently recalculate the stop’s trigger point. During momentary price dips, it’s crucial to resist the impulse to reset your trailing stop, or else your effective stop-loss may end up lower than expected. By the same token, reining in a trailing stop-loss is advisable when you see momentum peaking in the charts, especially when the stock is hitting a new high. Assuming that the bid price was $10.75 at the time, the position would be closed at this point and price.

Without a trading exit being part of your overall trading strategy, you are leaving yourself up to issues including using your emotions as a reason to exit. Uptrends need consistent buying pressure that can be observed as accumulation through on-balance volume (OBV) or another classic volume indicator. Downtrends need consistent selling pressure that can be observed as distribution. High-volume sessions that oppose position direction undermine accumulation-distribution patterns, often signaling the start of a profit-taking phase in an uptrend or value buying in a downtrend.

An exit strategy is a business owner’s strategic plan to sell ownership in a company to investors or another company. It outlines a process to reduce or liquidate ownership in a business and, if the business is successful, make a substantial profit. An exit strategy may also be executed when an investment or business venture has met its profit objective. For instance, an angel investor in a startup company may plan an exit strategy through an initial public offering (IPO). For a systematic approach that is easily repeatable across all asset classes and uses true market data, the ATR trade exit strategy makes more sense. It is also much easier to back test when considering your entire trading strategy approach and is my pick for a stop loss exit strategy.

Her expertise is in personal finance and investing, and real estate. But you significantly increase the probability of you preventing a winner turning into a loser with scaling, and good risk management with your stop loss. So, if it were a daily chart on the USD/JPY and the market broke higher and closed near the highs, put your exit at the midpoint of the breakout candle.