How To Exit a Profitable Trade

[roztom 10]

Thanks for visiting this thread and sharing your strategies. While many work on the entry to a trade if we can't exit efficently and manage the trade sucessfully to a profitable conclusion we will not be long for this business.

 

Please share what you have found, through your testing has yielded the moost consistent results. Also if your strategy is specific to your timeframe. Swing Trader might be different from short term daytrader or Currency vs. ES.

 

While timeframe, etc is important to a trade I am hoping you will share your exit strategies and based on testing what seems to be the most consistent process:

 

Some ideas:

 

Reversal signal in your timeframe

Trailing Stop

Time Based Stop

Target

Volatility Stop (ATR)

Trail Behind Moving Average

Market based target: Previous High/Low, CLose,Swing High/Low, Gap Fill Fill/Supp/Resistance/Other

Standard Deviation/Volatility Band

Other

 

If you use other processes please share.

 

Thanks for visiting this thread and sharing your insights.

[BlueHorseshoe 10]

MAE and MFE stop and targets are well worth adding to your list, I think. Provided market conditions don't differ wildly from the test data then they often hold up suprisingly well. A cruder version of this is simply an optimised dollar stop and target, though all the usual caveats about over-optimisation apply, and you want to see acceptable results across a broad range of parameters, not just one dollar stop/target that happens to work well when neighbouring parameters don't.

 

A fast moving average can work very well for targets for mean-reversion style trading, but this leaves unanswered the question of where to place a stop. Actually, although price always reverts to some mean, but we can never know which one, then multiple MA targets may be an interesting idea to explore for scaling out. I might try and investigate this and report back . . .

[Xiao si 10]

Great topic Tom.

 

Good timing too ..And so goes the dilemma, exit too early and you see the trend go off and leave you behind,,,exit too late and you give back profits...

 

Some things i like to do as a starting point for determining the best exit, from an intra-day POV.

 

1.) 2 x risk is the target

2.) Market on close

 

This gives you an idea of how trend/counter trend the market tends to be.

 

Use the scatter grams and go from there....don't forget that some markets trend during the morning and counter-trend in the arvo, and Visa Versa. If i get some time this week i'll post examples of my system with a few different types of exits....if y'all like.

 

XS

Edited March 10, 2012 by Xiao si

[MightyMouse 12]

You are asking a question that has no right answer to it.

 

First off, you should only be taking opportunities that have a great potential to make more than you are risking.

 

Secondly, you have to learn how to "draw lines in the sand", where you get out if it not longer does A or if it begins to do B and once the line in the sand is crossed you bail and be happy with what you took or what you lost.

 

Doing the above requires a great understanding of the components of your system. When you understand how the parts of your system move together, you can confidently draw lines in the sand.

[roztom 10]

You are asking a question that has no right answer to it.

 

First off, you should only be taking opportunities that have a great potential to make more than you are risking.

 

Secondly, you have to learn how to "draw lines in the sand", where you get out if it not longer does A or if it begins to do B and once the line in the sand is crossed you bail and be happy with what you took or what you lost.

 

Doing the above requires a great understanding of the components of your system. When you understand how the parts of your system move together, you can confidently draw lines in the sand.

 

Could you give us some examples so we can draw a refernce from it.. The "line in the sand" is really the question and if there are some methodologies that you might site that can help give us some direction.

 

Thanks for participating..

[roztom 10]

Great topic Tom.

 

Good timing too ..And so goes the dilemma, exit too early and you see the trend go off and leave you behind,,,exit too late and you give back profits...

 

Some things i like to do as a starting point for determining the best exit, from an intra-day POV.

 

1.) 2 x risk is the target

2.) Market on close

 

This gives you an idea of how trend/counter trend the market tends to be.

 

Use the scatter grams and go from there....don't forget that some markets trend during the morning and counter-trend in the arvo, and Visa Versa. If i get some time this week i'll post examples of my system with a few different types of exits....if y'all like.

 

XS

 

Anything you have that you have used - "good or bad" would be most appreciated... Thanks for participating..

[PrymeTyme 10]

You are asking a question that has no right answer to it.

 

First off, you should only be taking opportunities that have a great potential to make more than you are risking.

 

Secondly, you have to learn how to "draw lines in the sand", where you get out if it not longer does A or if it begins to do B and once the line in the sand is crossed you bail and be happy with what you took or what you lost.

 

Doing the above requires a great understanding of the components of your system. When you understand how the parts of your system move together, you can confidently draw lines in the sand.

 

Agree , except instead to understand a system u need to understand the market!

Lets say u are. Long what u should have done beforehand , is determine areas where your position could get in trouble like. Swing highs , resistance or supply levels etc.

Then you need to watch how price moves there and how it reacts at those areas. If the action is critical to your initial position or you see clearly a change in behaviour , get out

[roztom 10]

Agree , except instead to understand a system u need to understand the market!

Lets say u are. Long what u should have done beforehand , is determine areas where your position could get in trouble like. Swing highs , resistance or supply levels etc.

Then you need to watch how price moves there and how it reacts at those areas. If the action is critical to your initial position or you see clearly a change in behaviour , get out

 

While this is a descretionary process how would you define it.. If it takes out a Swing Low for example do you exit? Do you pull a trailing stop up behind at those areas? Usually there is a lot of distance between the current market and a swing extreme... Is there a better way to keep more of the open trade $ without giving them back?

 

If you think about the typical distance between swing high to swing low in most markets the price difference can be signifigent - especially for the daytrader - which most of us are...

 

Have you found any tools to help you keep more of your open trade profits?

 

Thanks for contributing

[MightyMouse 12]

Could you give us some examples so we can draw a refernce from it.. The "line in the sand" is really the question and if there are some methodologies that you might site that can help give us some direction.

 

Thanks for participating..

 

Sure. Your indicators, whatever they are, should give you information about what is going on in the market you are trading. Your indicator can be a simple as a a candle or price bar, or volume, price range, etc, etc. So, say, you narrow your indicators down to 4 indicators and you can choose from bullish bearish or neutral. With 4 indicators and 3 choices there are 81 distinct combinations of your indicators. Its a simple permutation formula: n^r N is the choices, R is the number of indicators.

 

I suggest that you use indicators that give you very different information from each other about the market you are trading so that your indicators are not measuring the same thing. Do do not use a moving average and an rsi or a Stochastic as separate indicators because they are virtually the same.

 

So, to use the above, you need to learn what each of the combinations of your indicators means for your market. So, do you only stay in when they are all bullish? do you wait until they are all bearish to exit? I do not know what you use and, therefore, do not know the answers you need. This takes some work, but eventually you learn the combinations like the back of your hand. I am not going to show you exactly what I use. But, this is the process I use.

[PrymeTyme 10]

While this is a descretionary process how would you define it.. If it takes out a Swing Low for example do you exit? Do you pull a trailing stop up behind at those areas? Usually there is a lot of distance between the current market and a swing extreme... Is there a better way to keep more of the open trade $ without giving them back?

 

If you think about the typical distance between swing high to swing low in most markets the price difference can be signifigent - especially for the daytrader - which most of us are...

 

Have you found any tools to help you keep more of your open trade profits?

 

Thanks for contributing

 

well its not that easy to tell your exactly what to do and why or where , as the markets dont act exactly the same way over and over .. and u have to adapt to the current situation .. etc.. it cant be simply described within some sentences .. aswell as my POV on the markets and how i approach them arent replicaple to you or others as each on there own has taken a different way , u need to dedicate alot of time and ask the right questions to yourself and keep looking for answers.. ie answering them also for yourself...

 

i set my SL and TP based on technicals ,if i swing or position trade ,

but the TP is temporary ie. if there are signs of strenght behind the current move

and its more likely to break thru my TP .. i hold the position till the next Trouble area approaches .. etc.. so basically i stay in the position as long as the market lets me...

 

however i put the SL as soon as possible @ BE ... so in the end i dont care if BE gets hit..

the markets will be there forever...

 

and if iam wrong in first place.. i get out of the market with a loss.. but thats ok.. as the longterm results speak for themselve

 

for scalping its a different story... but there u need momentum behind a move and gauge when it dries up .. and get out imediately..

 

however if iam in a position and the market stalls.. or simply isnt moving.. i get out at BE or 1-2 ticks.. loss... as i dont want to be exposed to the market for too long when scalping

 

 

no i dont use any tools... but price and volume

[Steve66 10]

In order for a trade to be profitable, the trader must have already booked gains. A profitable trade could turn into a loss quickly if gains aren’t booked. No one knows where the market is going next, or if the move is sustainable. You make money by booking gains. Traders that monitor the market internals realize that the instruments they trade have a good chance of following the internals. This information is used to assist the trader in defining risk reward parameters. There are many ways to trade the markets. Traders have defined their set-ups and defined probabilities of success. But, once in a trade, all bets are off and they must manage the trade. A trader must think, react quickly or have patience, adjust when necessary and realize that there are no expectations.

[roztom 10]

Question For Those with Target Exits..

 

Do any of you use ATR to adjust your targets dynamically based on market volatility as it relates to your timeframe?

 

Tx

[Xiao si 10]

For some system stop discussing i can present my simple pullback system with two stops. The first charts will show is the system with a 50 tick stop and 100 tick target. This is all to start discussion and not the settings that we would use to trade this system. I will post the trade summary and the equity curve.

 

First, the 50 stop and 100 target....

 

XS

[Xiao si 10]

For the second test we will change the target to 500. I have the system set to 'exit on close', so with such a large target the system either gets stopped out or exits on close.

 

XS

[Tradewinds 12]

I take into consideration whether the trend is at the beginning, middle or end; whether the price is choppy, and/or if the market is conflicted; the timing of news events, and how active the trading is.

 

I've listed about 7 different factors. For 7 variables, there are over 5,000 possible combinations of those variables.

 

It would be difficult to write a program that backtested every possible combination. Just trying to write a program that was able to accurately determine whether the trend was at the beginning, middle or end would be quite difficult.

 

If the price has made a commitment to a direction, let the profit run a little longer, If the trend shows sign of weakness, you may want to exit at the first opportunity. The beginning of a trend might be choppy, or surge hard. You can scalp a quick profit and hope to get back in, but if the price takes off, then you missed out. If you don't take profit at the beginning, price may retrace back to the entry again before committing to a direction. In that situation, you need to have some reason to know whether it's just a big retracement before the real move, or a failure to trend.

 

If the market is choppy or your indicators are conflicted, I would take profit immediately at any opportunity.

 

I don't have backtests, data and statistics to back up my observations. I have multiple indicators. Some might be showing that the trend is weakening, while another might show there is a divergence that indicates the trend will continue. Then there are situations like lots of strong up volume, but the price is dropping back to a previous level right before the news comes out. How do you program for fear or speculation? I'm not saying it can't be done, I'm just pointing out the difficulty.

 

If you backtest for isolated conditions, and don't take all the market influences into consideration, then there is the possibility of surprise situations you were not expecting. Do you trust your backtested signal 5 minutes before the news comes out?

 

There is what I call price 'Drift'. After a strong signal in the middle of a trend the price tends to overshoot the indicator. It's like if you accelerate real fast in your vehicle, and are not expecting any stops signs for a while, once you let off the gas pedal you keep moving in the same direction even after the cause of the movement has stopped.

 

At the end of the trend, you aren't going to get any 'Price Drift'. You see a stop sign coming up, and put on the brakes.

 

So, my answer to the question about when to exit is whether there is a stop sign coming up or not. If you can't see the stop sign, then you aren't going to know when to exit.

[Xiao si 10]

For Trailing Stops, we can adjust the parameters in the system with the dialog box....

 

XS

[roztom 10]

In order for a trade to be profitable, the trader must have already booked gains. A profitable trade could turn into a loss quickly if gains aren’t booked. No one knows where the market is going next, or if the move is sustainable. You make money by booking gains. Traders that monitor the market internals realize that the instruments they trade have a good chance of following the internals. This information is used to assist the trader in defining risk reward parameters. There are many ways to trade the markets. Traders have defined their set-ups and defined probabilities of success. But, once in a trade, all bets are off and they must manage the trade. A trader must think, react quickly or have patience, adjust when necessary and realize that there are no expectations.

 

Steve: All true... While there may be no real hard & fast answer to this - which is why I started this thread to see what others have concluded... there is always a question:

 

What are the criteria to exit a trade and book profits...

 

In my plan I trade with targets which come in at different levels..I, of course, do not know if we will get there or not...

 

In addition I do not know if a counter-rotation is just that or the beginning of a trend reversal...

 

Since counter-rotations are part of the market and we typically don't know their depth that presents a conundrum..

 

In my case I know where we "could" rotate to and often add to a position - the issue is will the market get there.. I don't know... If it takes that key area out then the trend may be changing but then open trade profit has vaporized. Do I scale up above and look for a rotation and risk losing good trade location, etc.

 

I think the plan must accomodate profits first...the risk of scaling and missing more is probably better than risking open trade profits.. targets don't have to be hit or will not be hit during my trade..

 

I understand this Exit Criteria can seem nebulous and is specific to each individual which is what begets the question since we all must address it in some fashion and sometimes the answer can be laid off on a structure whether a Swing H/L, break of a channel, MAvg, Trail Stop or just a reversal signal..

 

 

If we hold through the day which many of us do then we do have to address this unless we are not shooting for longer plays and then we are trading momentum... a different structure.

[roztom 10]

I take into consideration whether the trend is at the beginning, middle or end; whether the price is choppy, and/or if the market is conflicted; the timing of news events, and how active the trading is.

 

I've listed about 7 different factors. For 7 variables, there are over 5,000 possible combinations of those variables.

 

It would be difficult to write a program that backtested every possible combination. Just trying to write a program that was able to accurately determine whether the trend was at the beginning, middle or end would be quite difficult.

 

If the price has made a commitment to a direction, let the profit run a little longer, If the trend shows sign of weakness, you may want to exit at the first opportunity. The beginning of a trend might be choppy, or surge hard. You can scalp a quick profit and hope to get back in, but if the price takes off, then you missed out. If you don't take profit at the beginning, price may retrace back to the entry again before committing to a direction. In that situation, you need to have some reason to know whether it's just a big retracement before the real move, or a failure to trend.

 

If the market is choppy or your indicators are conflicted, I would take profit immediately at any opportunity.

 

I don't have backtests, data and statistics to back up my observations. I have multiple indicators. Some might be showing that the trend is weakening, while another might show there is a divergence that indicates the trend will continue. Then there are situations like lots of strong up volume, but the price is dropping back to a previous level right before the news comes out. How do you program for fear or speculation? I'm not saying it can't be done, I'm just pointing out the difficulty.

 

If you backtest for isolated conditions, and don't take all the market influences into consideration, then there is the possibility of surprise situations you were not expecting. Do you trust your backtested signal 5 minutes before the news comes out?

 

There is what I call price 'Drift'. After a strong signal in the middle of a trend the price tends to overshoot the indicator. It's like if you accelerate real fast in your vehicle, and are not expecting any stops signs for a while, once you let off the gas pedal you keep moving in the same direction even after the cause of the movement has stopped.

 

At the end of the trend, you aren't going to get any 'Price Drift'. You see a stop sign coming up, and put on the brakes.

 

So, my answer to the question about when to exit is whether there is a stop sign coming up or not. If you can't see the stop sign, then you aren't going to know when to exit.

 

Tx..A very good summary of the issue... the variables are exponential... and with so many variables most of us probably cannot accomodate them so some may want an overall approach or discipline that accomodates what we know we don't know.

 

I suspect some of you are comfortable being discretionary with your exits but then it is random, imho. I am not a mechanical trader but I do have a process I follow which is "systematic." I am trying to create a more systematic exit strategy but I am not satisfied so far...they just leave too much on the table. I trade ES and if I get a 6 pt move I can easily leave 2 pts on the table and considering my entery might be 1pt off the beginning of the move that is at least 50% missed not including costs...that is the issue...

 

Maybe this revolves around short-term volatility trading vs longer-term interday trading... Exit strategies are different for both..

[Steve66 10]

Steve: All true... While there may be no real hard & fast answer to this - which is why I started this thread to see what others have concluded... there is always a question:

 

What are the criteria to exit a trade and book profits...

 

In my plan I trade with targets which come in at different levels..I, of course, do not know if we will get there or not...

 

In addition I do not know if a counter-rotation is just that or the beginning of a trend reversal...

 

Since counter-rotations are part of the market and we typically don't know their depth that presents a conundrum..

 

In my case I know where we "could" rotate to and often add to a position - the issue is will the market get there.. I don't know... If it takes that key area out then the trend may be changing but then open trade profit has vaporized. Do I scale up above and look for a rotation and risk losing good trade location, etc.

 

I think the plan must accomodate profits first...the risk of scaling and missing more is probably better than risking open trade profits.. targets don't have to be hit or will not be hit during my trade..

 

I understand this Exit Criteria can seem nebulous and is specific to each individual which is what begets the question since we all must address it in some fashion and sometimes the answer can be laid off on a structure whether a Swing H/L, break of a channel, MAvg, Trail Stop or just a reversal signal..

 

 

If we hold through the day which many of us do then we do have to address this unless we are not shooting for longer plays and then we are trading momentum... a different structure.

 

Hi roztom. I trade emini futures. I am not a buy and hold trader. I trade with momentum and specific criteria. I look for 1 point in each 15 minute candle. my risk reward is 1:1. I use simple bracket orders and manage the stop and target when filled. I look for 1-3 trades a day. My trades last 1-7 minutes avg.

 

If I were a buy and hold futures trader, I would use multi- bracket orders and set my buy/ sell orders based on fibonacci retracement and market profile analysis. If my criteria for taking a trade is met, I would take the trade, set it and forget it. If the market allows my trade to go the distance, the orders would be booking profit and continuing to play out. If not, I would be stopped out with a small loss or small profit. I would set an alert in my platform to tell me that last bracket has been filled so I can manage the rest of the trade manually.

 

To me the simple approach is the best approach. I have a pretty detailed trading plan that is built around my style of trading and personality. Money management gets me out of trades that go against my risk reward parameters, I always use a stop order. Trade management keeps me in the trade until one of my exit criteria is met.

 

Most traders don't trade with a plan or risk reward parameters. These traders end up losing trades to traders that do.

[BlueHorseshoe 10]

Question For Those with Target Exits..

 

Do any of you use ATR to adjust your targets dynamically based on market volatility as it relates to your timeframe?

 

Tx

 

Although it's frustrating to work out why (surely a volatility based target makes perfect sense?), volatility targets don't normally do anything to enhance performance in my experience. They just add in another complicated and potentially curve-fitted ingredient.

[BlueHorseshoe 10]

Do you trust your backtested signal 5 minutes before the news comes out?

 

Yes/no/neither. As a system trader you neither trust or distrust your backtested signal in any individual instance. Maybe you'l win, maybe you'll lose - who knows?

 

What you do know is that, with a profitable system based on historical probabilities you'll win more than you lose. Your backtests, if adequate, will already have factored in many examples of signals taken 5 minutes before news came out. Worrying about how every permutation of circumstance will affect each individual trade is the province of the discretionary trader; the systems trader already knows this information in terms of net outcome asssuming that the future roughly corresponds to the past. And of course the bit in italics is what the systems trader worries about . . .

[Xiao si 10]

Interesting article that those following this thread may find also find interesting.

 

XS

[roztom 10]

Hi roztom. I trade emini futures. I am not a buy and hold trader. I trade with momentum and specific criteria. I look for 1 point in each 15 minute candle. my risk reward is 1:1. I use simple bracket orders and manage the stop and target when filled. I look for 1-3 trades a day. My trades last 1-7 minutes avg.

 

If I were a buy and hold futures trader, I would use multi- bracket orders and set my buy/ sell orders based on fibonacci retracement and market profile analysis. If my criteria for taking a trade is met, I would take the trade, set it and forget it. If the market allows my trade to go the distance, the orders would be booking profit and continuing to play out. If not, I would be stopped out with a small loss or small profit. I would set an alert in my platform to tell me that last bracket has been filled so I can manage the rest of the trade manually.

 

To me the simple approach is the best approach. I have a pretty detailed trading plan that is built around my style of trading and personality. Money management gets me out of trades that go against my risk reward parameters, I always use a stop order. Trade management keeps me in the trade until one of my exit criteria is met.

 

Most traders don't trade with a plan or risk reward parameters. These traders end up losing trades to traders that do.

 

Steve: I see you have a fixed profit target, possibly for your first scale or are you all in all out? For a while I did a 1:1 R/R with a 1.25 target and then a 2.0 target with the stop B/E on the first after the first target was ticked, not filled.. However, when I was stopped it would really knock the numbers down, especiallly in a chop.. I've gone down that path... On a trending day it was great since it picked up the rotations very well but on other days the chop was the issue... any further ideas on the short targets and trade Mgmt? Tx for posting..

[BlueHorseshoe 10]

I look for 1 point in each 15 minute candle. my risk reward is 1:1 .

 

Hi Steve,

 

This might be me being a bit stupid, but could you clarify the above sentences for me? Do you mean that your profit target and stop are both 1 point (pressumably four ticks in the ES for instance)? Or do you mean something else?

 

Thanks

[Steve66 10]

Hi Steve,

 

This might be me being a bit stupid, but could you clarify the above sentences for me? Do you mean that your profit target and stop are both 1 point (pressumably four ticks in the ES for instance)? Or do you mean something else?

 

Thanks

 

Ill try to explain without going into much detail. I have criteria I look at for trade set-ups. Basically, each 15 minute candle is a potential trade. I read the price action, vol and market levels (and a few other things) to determine if there is a potential for lets say, at least 6 ticks of action. My decision to take the trade comes in at about 7 minutes into the candle. My stop and target orders are set for 6 ticks. Once it is determined that the market has shown me that my target can be made, or the levels are in reach, I enter the trade on limit orders (momentum) based on my trading rules for the set-up. If I am wrong, I get stopped out, If I am right, I hit my target lock it in. If the market continues on, I manage the target and trail a stop to get the most out of the trade. The stronger set-ups, the more contracts I am comfortable entering with. I may scale out or go all out when managing the trade. I don't add to the trade and I never move a stop to increase risk. I prefer to trade during the first and last 1:30 minutes of the cash session.