Conditions for exiting a trade

Trading Discussion
1

Hi everyone,
I’m currently setting up my trading plan and I’m having difficulty coming up with conditions for exiting a trade, can anyone help?

2

Exits are easy to identify when you’re following a trend - they must meet two conditions -

  1. price shows the trend is weaker
  2. if the weakness ends, there will be a new entry signal

There will be dozens of ways to say that a trend is weaker than it was, I can’t list them all. But if you’re in a trade and price is not moving in your direction in a trend, maybe that’s already an exit signal?

4 Likes
3

There are three ways that a trade is exited (apart from manual intuitive intervention):

  1. a stop loss

  2. a reverse entry signal

  3. a profit target

How these are defined depends a whole lot on your trading strategy but principally:

  1. Your stop loss will be initially defined by a R:R ratio or set at a point where your entry criteria is invalidated e,g, beyond a S/R or swing high/low etc

  2. If a new entry set up occurs in the opposite direction then the existing trade should be closed and maybe a reverse opened

  3. This is the one with most varieties but basically there are three, maybe more, types that come to mind:

  • A preset pip target defined by the strategy, e.g. 20 pips per trade

  • A TP set at a target that one believes the price could reach e.g. a Fib level or a channel top/bottom, S/R lines etc

  • An open trade with some form of trailing stops moving with the price as the trade progresses. E.g. a loss of momentum area as mentioned by @tommor in the above post, or beyond a newly formed higher low or lower high. These types of exits are designed for longer term trends where you do not want to limit the possible gains from the entire move until it exhausts and eventually drops back to the floating stop.

5 Likes
4

Great question man.
I will try to give my humble 2 cents on this.

Conditions for exiting a trade should depend on what type of trading are you executing (trends, bounces etc.)

But what every exiting policy should have in common (and most that i know, do) is Support & Ressitance - or to be more precise, taking (parshal) profits few pips before reaching those levels.

1 Like
5

This was really helpful, thank you

6

I would never risk ‘any’ of my cash without first expecting to get at a 1:1 return.
Keep it simple
Keep it simple
When you have consistently winning trades, increase the ratio.

Thx Reno
p.s. do not forget to write that down in your trading plan.

7

Exiting a winning trade has proven to me to be by far the most difficult part of my trading strategy.

Exiting a losing position on the other hand is by far the easiest part of trading as far as im concerned.

There are so many factors to consider when deciding to exit a winning trade not to mention the different ways that one can close a winning position.

I think that it very much depends and varies with the strategy, im not sure that there is a one size fits all solution when it comes to this question.

8

Trend followers tactic is to cut losses short and let winners run. This simply means you should know at the start at what point price would reach to stop moving in your direction, your intuition and not fear would play a big part to cut losses. Same goes for a winning trade, you simply should know at what price movement at which the trade is no longer in your favour. Unlike loss exit where intuition plays major part to me, my winner exit is determined by market Action, this means I won’t exit a winning trade until it starts going against me. And if I figure out it was simply a retracement, I would jump back in to finish off from were I started.

9

I think that we are missing info if you are trying to exit a losing or winning trade? I suppose that you are speaking about TP level as this is most difficult one to set. When I see that market is ready to revert ST trend I am closing my position at this point. Not always right, though