Tuesday, 20 April 2010

Exit, Stage Left

As I have said before, for me EXITS are more important than entries. Again, as Pete Steidlmayer told me:"Just get the trade on and manage it".

Money Management is the key to profitability. It is THE holy grail. How and when you exit quantifies and determines whether you are exiting at a profit or a loss and how much.

My exit strategy is a key part of my trading plan. As I have said about Flo, it takes a lot of smaller profits. Why? because of the trading plan: Lots of entries, exits - HFT. In my discretionary trading, the trading plan is different. I get a trade on with the visibility of a profit of at least the first logical scale point. I don't have any certainty whether there is any more in the trade. I have my envisioning where I have a possibility in mind like the short trade yesterday in the ES, but no real certainty. My plan calls for a first scale based on either a monetary target equal to me drop dead stop or at a first logical scale area. It then calls for me to manage the trade scaling out or exiting all, depending on what I see.

To find my exit points, I am paying attention to support and resistance in both the Profile and the EMAs. These are logical scale points.

There are other things I look at: CCIs when momentum turns or runs out coinciding with something else. I use the MomDots too. If it has been a trade that has lasted more than about 5 bars, the MomDots give a good exit with the knowledge that if I have exited too early, I'll get a re-entry after that pullback.

Other people I know use ATRs (google it) as an exit as they adjust to volatility. Still others use a number of range bars stops. There are lots of ways to exit but I suggest that both consistency and a thought out exit strategy in a written trading plan are very important. It's not very efficient to try and make this important decision on impulse during the heat of battle.

Another fun day at the office. I traded the 6E in the morning again and then went to the ES. I first traded the gap back down to the top of yesterday's Profile. Even though the southern tail was double prints, it was pretty clear we were going north after the down action. I had a couple of good trades as the market went up until that Fib number stopped the action for me right at the upper Keltner area. Time to take the dog for a walk. If price explodes past the Fib top then it will be interesting in the U.S. afternoon.


  1. Tom, is there anyway you can tell us price at which you exited 1st short trade and why at that price and not earlier or later?

    I understand about flow changes, but if you can comment on how you have noticed it and reacted to it, that would be at most benefitial.

  2. Hi El,

    Part of the header of your blog is "learning to trade with orderflow", orderflow is as i understand a very important part for your trading decisions.

    i did found some good setups by studying your charts. But im not using the orderflow/delta ...

    Im not sure how i can use the orderflow part in my trading. the smoothed cvd is lagging because of the 9 ema and delta per bar can change easily. Im only using deltabars now for spotting divergences and to get a feeling about buying/selling activity (delta).

    im trying to create my own elmom indicator and have to define orderflow in concrete terms.

    Can you discuss (in general) how you are using orderflow?

  3. EL thank You for share with Us your knowledge.
    You are talking about exits when the move is in your favor, what you look, when the move is against you?
    In your chart today, i guess that you take a lost on short 1 and 3, and BE or a small profit in the second short.
    How you handle those trades. can you talk a little more about?

    Thanks again


  4. in addition of my question At 18:14 here is my euro chart


    33 ema and 99 ema's are sloping down, cci is below 0 for the most part but the cvd is more green then red.
    most of my setups did work but i like to use and understand the orderflow better.

    i find it difficult to incorporate the flow when it behaves like this.


  5. Can you discuss (in general) how you are using orderflow?


  6. EXITS: I have found that the best and probably the only Discretionary trades I take are the ones where I have a good Target in mind for the Exit.

    This could be the retest of a prior high or low, or a wave5 type extension move or othere support/resistance zones.

    Many times the stronger zones seem to act as price magnets and when I have atarget in mind I find it easier to hold on rather than take early profit.

    My trading results are excellent when I am taking profit at 2x risk or higher rather than scalp a move. When I scalp, I am let watching a move without being on board and then have to fight the emotional tug to get back in.

    EXITS are the key to this cp.

  7. Hi EL, interesting chart. It looks to me like you took 11 trades of which 7 were for a loss. The last 3 buys I am not clear on. It looks like you stopped on 2 and rode the last one up for a win. Can you speak about how you managed these trades? Did you take small losses on all of them, or some of them, and what do you see to get out early. Was this a winning day or a rare losing day for you?

    Thanks for all you do!

  8. Guys, there is a two parter starting Wednesday on Order Flow.
    Andy, the signals on the MD charets are setups not trades. The two parter on Order Flow will explain it more.

    I had 4 trades today. 1 in the 6E and 3 in the ES, fortuneately all green, but that is not always the case.

  9. Hi EL,

    It's interesting (or maybe just coincidence) that when price is above the 33EMA, 45CCI is above zero; and when price is below the 33EMA the 45CCI is below zero. It tracks that way in every market I've looked at. Is there some special relationship between the two, or is is just coincidental math?

    Many thanks for your great blog.


  10. JD, yes the 2 are almost the same thing except the CCI movement tells you about momentum. Have a look st the CCI formula.