Help With A Exit Strategy

Trading Discussion
1

I was hoping I could get some help on my exit strategy on the Forex Market.

Here’s my Entry;

Identify a trend on the day chart, otherwise don’t trade it.
Identify a trend line on the hour chart, and wait for a pull back to the trend line before trading it. I will only trade it, if it is a shooting star or a hammer through.
Go to the 5-15 minute chart, and identify a hammer throw or a shooting star on the trend line from the hour chart and enter the trade.
My stop loss is above the previous high/low on the 5-15 minute chart.

This strategy has been very successful for me, but i’m still demo trading it. The reason being, I’m not confident on a exiting strategy yet.

However I will say this has made $1100 demo trading with a risk of $100 per trade, in the last 4 weeks. I know this is short term, but it is the most successful strategy I’ve had right now in Forex.

I think my win ratio is around the 65% mark right now, but this is without an exit strategy. I sometimes look at the trade and think oh $70 I’ll take that while I can, with no basis for getting out. I’m sure I can get it to 80%-90% with a good exit strategy.

I obviously don’t trade the news during my trading as I’ve learned that lesson the hard way.

However after looking back, the majority of the time I’ve gotten out of the trade and it’s gone on to hit it’s take profit, or there was more to the move than when I got out.

I sometimes get out when my trend line on the 5 minute chart has been broken. To reduce the risk of not hitting my stop loss, and I come out with a small loss, however it’s then gone on to come back and hit my take profit.

Is there something else I can look for, other than breaking the trend line, to tell me there is nothing more to this move or something like that?

Any advice would be appreciated.

2

Lots of good comments, in your post above (especially about avoiding news!), and clearly a solid, sensible method - and you’re asking a good question, too (for all that it’s not trivially easy to answer!). :cool:

I suspect that you might get your win-rate up to around 70-75%, maybe not 80-90%.

Also, note that the highest possible win-rate isn’t necessarily the most profitable method, overall - profit depends on the size of the losses as well as on their frequency. In other words, expectancy is what matters, rather than just win rate as an isolated consideration.

Your entry-method and stop-loss placement certainly sound completely sensible, anyway.

Exits are always harder.

Here’s the reality: there isn’t going to be a “perfect solution”, and whatever you do, there will [B][U]always[/U][/B] be some times that it works out badly and some other method would have worked far better on that occasion.

It’s important to acknowledge that, at the outset, and then just to adopt a sensible method of exiting that suits your overall trading style, knowing that it isn’t going to be perfect.

The problem is that finding out which exact method is best, over the long term, takes an enormous amount of backtesting and forward-testing of several different methods, in order to achieve statistical significance. It’s always far more easily said than done.

People vary in the extents to which “loss of some profit already made” and “fear of missing out on a further move” influence them. And these can be conflicting motivations.

For myself, I try to combine the best of both worlds, and close [U]some[/U] of the trade after achieving an initial target, and then let the rest run, if it will. For me, this works out well.

So, my suggestions for you are …

(i) Divide the trade, effectively, and exit in two (or more) stages so that you bank some profit early-ish

(ii) Work out the “initial target”, at which you close some (half?) of the trade [U]in accordance with the current volatility[/U] - which you can easily judge from the current ATR

(iii) [B][U]Don’t[/U][/B] use an automated trailing stop (usually a big mistake)

(iv) [B][U]Don’t[/U][/B] beat yourself up about the fact that whatever method you’re using isn’t always the best - you can’t fully resolve that problem, whatever you do

Not to tell you that reliably, no.

There are simple ways, and complicated ways, and very complicated ways.

At the moment you’re using a simple way, and that’s probably right, and it’s probably going to be disproportionately hard to improve significantly on “breaking the trendline”, which is a fundamentally sensible approach, albeit not perfect.

If you [U]really[/U] want, when I have time for a long post I can probably suggest 7 or 8 different methods you can [I]try[/I], [B]but[/B] they’re all more complicated, [U]and[/U] it’ll be really difficult and time-consuming to tell whether any of them works out better for you overall, [U]and[/U] there’s no compelling reason why any of them should.

3

Hi Lexys,

Thank you for your reply.

The taking “part profit” idea is very good and I will consider it in the future.

If you do have the time going forward, I would love to hear your different methods you mentioned in the previous post.

4

[U]Recommended to [B]avoid[/B][/U]:

  • Automated trailing stops: they always [B][U]sound[/U][/B] very attractive, because they appear to be a way of locking in profit and limiting future loss while allowing further profit to develop if the move continues - most appealing, [I]in theory[/I] … unfortunately, however, in the long term (which is all that matters, with trading) the reality tends to be rather different. There are reasons for that, but they take a bit of experience to understand. This little thread says a bit more

[U]Other methods I’ve tried in the past[/U]:

  • Candle/bar patterns making me suspect that either a reversal or at least a substantial retracement is realtively likely - I still use these routinely (but they’re the method requiring most “price action understanding/experience”)

  • Stops trailed manually above/below the most recently-formed swing-high/low (I’ve done best with this, overall, and still routinely use it now, for the last third of my trades, if and when they “run”) - this one is arguably a “special case” of the one mentioned just above

  • A [U]time[/U] factor (e.g. “close the trade after 5 bars/candles”) - something some professionals but very few amateurs use (I think mostly because it needs a lot of research, to select appropriately); this is probably my own “second-choice”

  • Heikin-Ashi candle colour-changes (I made this work out reasonably well by dropping down to a slightly faster time-frame from the one used for the entry and closing the trade at the close of the [I]second[/I] consecutive counter-coloured candle)

  • Parabolic SAR methods (their originally intended use)

  • Sizes/proportions of apparent retracements (can be measured in pips, by volatility or even by indicators)

  • Donchian channels and related methods, e.g. closing a long trade after the lowest low of “x” periods has been reached, where “x” is some (usually low) number - plenty of scope here: this would probably be my own third choice

  • Using Ichimoku and manually trailing a stop, bar by bar, just beyond the Kijun Sen line above/under the position of the [U]third[/U]-previous bar/candle (this can certainly work very well, but requires some understanding of appropriate Ichimoku settings, and that information’s certainly [U]not[/U] in plentiful supply, [I]especially[/I] online, where most “Ichimoku information” is unreliable and deeply flawed!)

[U]Other sensible-sounding methods I haven’t used[/U]:

  • Closing when a specified moving average [I]changes direction[/I] (this technique was recommended by Walter Peters, co-author of a decent book, in a forum which is no longer available) - again, it can take a lot of trial/error/research to find the right one

  • MACD (or maybe even RSI) reversal

  • The price crossing a “right-displaced moving average”

I’m sure there are plenty more, too …

The problem with all of them - naturally enough - is that the research/monitoring takes up a huge amount of time/effort; often, perhaps, a disproportionate amount of time/effort for the overall benefit produced.

If someone asked for a single recommendation for “something to look at” that’s interesting, plausible, “different”, and has some potential, I’d probably suggest looking at “timed closes”. In my case, the “timing” is actually to do with units of volumes traded, rather than time-periods [I]per se[/I] (because I trade directly from volume-bars), but the principle’s the same. I think “timed closes” have some potential (including for automation, for those interested in that) and I don’t really understand why they’re so widely ignored.

5

The question I’m going to throw into the mix here is this:

What is the foundational philosophy of your strategy? Is it to try to jump on trends and hold on for as long as they run? Or is it to try to play market swings?

The answer to this question should factor significantly into your exit strategy. If you’re trend following, then your exit should be based on identifying the probable end of the trend. In this case price targets are a BAD idea. If you’re looking to play swings, then you should have some idea going in how far the swing will go. Thus you have a target, but with a back-up plan if the market doesn’t reach that far.

6

Thanks Lexys.

I really like the look of the Heikin-Ashi. However I’m not really familiar with it. Do you know where I can learn it? I don’t seem to be able to find it on baby pips, and I see a lot of good potential in it.

7

Sorry, I’m not awash with information about it, but these three links might help …

[B]Heikin-Ashi [ChartSchool]

How To Trade with Heikin-Ashi Candlesticks

https://www.luckscout.com/what-is-heikin-ashi-and-how-to-trade-with-it/[/B]

It [I]is[/I] quite interesting - it’s a kind of cross between an indicator and a charting technique, really. “Smoothed HA” is worth a look, too.

8

Hi Shell10 - I find all these suggestions so far to be spot on. If your looking for a super simple exit, and this is for an intraday bet. . .just used 80% of ATR. I’ve gotten that piece from some pretty seasoned veterans. They still use this. Right now as you noted in your text… .I struggle with setting my order and moving to breakeven to quickly in some cases. The cases when price stops me out almost to the pip, then goes to my TP… .very frustrating. This is however part of the price action. . and at the moment. . I do not have any advice on this topic.
Lexys? Rhodytrader? any advice on this topic?

9

With respect to this, I’d add to my comment above that exit strategy isn’t just about when the trade goes your way. Your negative exit (a.k.a. stop) strategy should also be based on the underlying philosophy of the trade you’re doing. Ask yourself the question “At what price point will the market be telling me the trade isn’t likely to work out.”

10

This - exactly.

For myself, given my underlying trading-style, I need the price to move in “my direction” fairly quickly after entering, so I use tight-ish stop-losses. In principle, I put my initial stop-loss wherever I don’t want to be in the trade any more if the price reaches it, because that level would suggest that my entry-reason wasn’t correct on that occasion. If that happens, I just want to be out of the trade with as small a loss as possible. (In practice, that tends to be volatility-related, and is often just above/below the most recently-formed swing-high/low on the chart from which I’m entering.)

11

This is just the direction I have been thinking I must take also. Looking back this month at my losers over the year, I see about a third of the losers moved to the initial swing low/swing high stop-loss almost immediately after I had entered. The remainder did not usually go into profit and then fall to the stop loss, they fell steadily to about the half-way mark and then loitered there, staying in the red. Eventually price either trickled to the stop or made a more dramatic move and hit the stop.

My winners tend to be winners from the start, right from entry - they are not usually recovering trades going first into the red and then into the money.

12

Mine also - very much so. “That sinking feeling” comes pretty quickly if they initially move against me: those aren’t the trades I’m there for, but on fast charts you have to allow [I]some[/I] "breathing space for ‘noise’ "? :8:

13

Yes, true, but potentially not as much as I think I need. What I believe I’m seeing is that if price gets to 50% of the distance between Entry and Stop, it will not recover or at least not recover to go to Entry + risk and a profitable exit. But against this, the winners go straight into the money, so they never get to even -25%, so possibly an initial stop at 50% to the swing high/low is still too wide. Maybe I will experiment with a 25% initial stop and damn the win rate. Something new for the new year maybe.

14

In the circumstances you describe, that (or maybe even 30/35%?) sounds like a potentially profitable experiment, to me. Maybe you can “parallel-test” while trading?

For the type of trading I envisage you’re doing, I’m sure “damn the win rate” is a philosophy at least worth looking at, if you can tighten the stop enough?

15

Something I have been doing lately is to either use straddled entry orders or market orders, buying and selling simultaneously when a trend goes into consolidation for an unknown amount of time before resuming or reversing… Once direction is resumed, I will take a small loss on the directionally wrong trade and continue to let the other one run… If the trend is strong, I make up the loss from the wrong trade and double profit on top… This is quite useful when you get caught several times trying to guess direction in a trend that has temporarily lost momentum, which means that it can move erratically with false starts in both directions…

16

Sorry it’s took so long to reply, but I’ve been busy the last couple of days.

My strategy is based on jumping in on an on going trend on it pull back. I usually aim to go for the previous high/low on the hour chart. I’m not looking to keep going and going until the trend is done.

One thing that is obviously very important in this is the mindset. I’m trying to find a way as mechanical to trade. So i get out based on a signal, rather than thinking, is this trade gone as far as it has gone or not?

17

Thanks Lexys!

I have one question though? Do you know if it is possible to get this indicator on a phone?

I’m always out at work when the market is most volatile and have to trade on my phone. I’ve been on meta trader 4 & 5 and I can’t get it set up on either.

I’ve looked all over the internet for an app that may have it too, but I’ve had no luck.

18

Sorry - I don’t use Metatrader and I don’t trade from phones, so I can’t help you at all with this one. But someone who knows what they’re talking about will doubtless see your question and reply to it, anyway. :8:

19

It’s worth noting that this strategy can be replicated by simply putting trend trade entry orders where you have your stops for the opposing legs of your “straddle”.

For example: If you go long at 100 with a stop at 95 and short with a stop at 105, it’s the same as just putting in orders to go long at 105 or short at 95.

Plus, its saves you the spread cost.

20

True, Rhody,

I am using a demo that is a bit funny in the way it is set up so I cannot use entry orders

  • I could easily request another demo but I am building a good track record on this so

I am sticking with it.

Yes, you would save on the spread (i.e. you could enter at the same price).

Cheers anyway :slight_smile: