exit strategy, when to sell
- Thread starter z32000
- Start date
Hi OldTrader,
I read several of z32000 past posts prior to responding with my first reply to his question.
I trade futures and currently have a strong interest in the Russell 2000 Emini ER2.
Thus, my reply was aimed at his background.
Further, although I wasn't talking about buying strength and then selling weakness......
I do understand your point involving that particular approach.
With that said, even for stock traders, having exit strategy without any commonalities to the entry strategy is problematic for most traders except for the experienced traders as explained in my first post.
Simply, I'm specifically talking about beginner or struggling traders using an exit strategy with no commonalities to their entry strategy.
These types of traders develop conflict in their trade management along with having a method not coherent sort'uv speak from entry to exit.
Here's a simple example of what I've talking about.
Lets say a trader uses pivot point analysis to enter a trade.
Pivot point analysis should also be part of the exit strategy.
I also stated in my prior post that veteran traders tend to not have this problem with using a entry strategy with nothing in common with the exit strategy.
For example, a trader using pivot point analysis to enter a trade but uses a risk:reward ratio to determine his exit strategy.
There's problem with the above approach and the only traders I've met that makes it work are the seasoned veteran traders.
Simply, as the trading years accumulate, a trader develops a better understanding of the price action.
That type of market experience gives the trader the ability to "multi-task" sort'uv speak within the trade management of a trade...
Allowing use of different themes within a single trade involving the entry signal, initial stop/loss protection, trailing stop, profit targets and position reversal signals.
Mark
Quote from William Rennick:
Set your stop at least 10% above what you paid. Use an audible alarm. Wait buck naked in the closet until you hear the alarm go off.. If you are trading large, go the fetal position and insert thumb. If you are lucky enough to hear the alarm sound, go streaking through the neighborhood spazzing out like a black lady who was called to "come on down" on the Price is Right.
Rennick
Let's assume you are talking about the stock index futures. Your exits are a function of your overall methodology. If you are scalping, your exits will be far different from someone looking to catch a 15 or 20 minute move. I respectfully disagree with the notion that your exit has to mirror your entry. That seems unnecessarily limiting to me.
I think if you have done adequate backtesting, you will know what the normal range of moves is for each entry. This is the flipside of having an idea of what the maximum adverse excursion or MAE is for successful trades. Once a trade has gone a certain number of points or number of bars in your favor, typically the odds begin to decrease that it will continue. In that situation I am typically looking to exit on strength, if long.
When you are trading intraday, you have to understand that certain price levels will have a magnetic attraction for price, such as prior high/lows, pivots,e tc. They can be good exit points. Same for obvious S and R, which will get taken out in stop running operations. You want to exit into the sucker buying at new highs, etc.
There are three good rules of thumb for exits. First, your protective stop. Second, breakeven after the trade has gone into the black. Third, don't give back more than half the profit once it has become a "good" winner, whatever that is for your strategy. You can increase that percentage as the trade works higher. I would use that as a fall back method however, because otherwise you are always exiting on a pullback and not maximizing the trade.
To make money as an index futures trader, I believe it is critical to hit the big trend days. Marty Schwarz claimed to make the vast majority of his money on maybe 10 percent of the trading days. The exit rules on a trend day are totally different. The key is to hold on no matter what for the close. Of course, it can be hard to know ahead of time if it is a trend day or not.
I know that you cannot statistically justify getting out when certain dollar totals for the day, week, etc are met, but that doesn't mean you should ignore them. If I have been down all day, you better believe I am looking to get even. It's not a question of immediately exiting, but it affects which side of the trade gets the benefit of the doubt.
One last point that has proved very important to me over the years. When you are in a losing streak, take profits quickly. It helps get your head out of the toilet, plus the fact that you are losing indicates the market is crappy, so you can't trust the trade.
I'll repeat because its obviously not sinking in.
Commonalities and mirror (inverse or opposite) are two different things.
Here's an example of an entry and exit strategy that's mirror.
Entry based upon a Bullish Harami pattern and exit based upon a Bearish Harami pattern.
That's not what I'm talking about nor do I know anyone that trades like that.
Therefore, I strongly agree with you that mirrored approaches are limiting and produces a poor exit strategy.
With that said, I'm talking about commonalities (similarities) between the entry and exit strategy.
Here's another example of what I'm talking about.
Entry signal based upon Bullish Harami and the exit strategy based upon any type of Bearish candlestick pattern (ex. engulfing, shooting star, hangman et cetera).
Simply, the entry signal is based upon Japanese Candlestick patterns and the exit strategy should be based upon any thing to do with Japanese Candlestick analysis.
I'm not suggesting he uses Japanese Candlestick patterns...it's just for example only.
In contrast, what I see beginners and struggling traders have problems with is when they try to gel together completely different types of market approaches like a veteran trader...
Few can do such and be consistently profitable.
An example of trade management conflict is the following...
Entry signal via a Bullish Harami and exit strategy via risk:reward ratio.
Those are two completely different types of market approaches (mixing it up) without any commonalities in which most beginner or struggling traders have too much difficult to manage while veteran traders are more at ease with it because they tend to have a better understanding of the price action.
Therefore, when you said the following...
That's what I'm talking about and hopefully the examples above are clear.
Mark