Wednesday, 9 June 2010

Exit, Stage Left, Again

As traders, we control our entries and exits. We go to a lot of trouble to work out how to enter. However, profits and losses are made by exiting in trading. Its not like buying an undervalued piece of property and then selling it for its fair value.

Yet in looking at lots of trading plans, all I see is a stop loss and some generalised profit rules. In writing entry rules, I see detailed minutiae description to the nth degree. Why are exit rules not described in such detail?

It would be easy if our exit was the opposite of our entry. But we have learned by now that nothing in trading is quite so straight forward.

Our exits depend partly upon what type of trader we are and what time frame we trade. A scalper will exit differently than a swing trader although their entries may be quite similar.

Markets do not move in straight lines but are a series of moves and pullbacks until the pullback becomes a reversal. We can get rid of a lot of the noise if we want by using range bars. What needs to be done is deciding how you want to trade these advances in trend and pullbacks. Are after an exit at every peak and an entry at every trough? Or will you let a series of advances and pullbacks continue until a target? These are just two of the choices. Exits can be more complex than entries. Thought and back testing will reveal what is both profitable and fits your emotional profile as a trader.

I will be spending a lot of time on this in the training, helping the attendees finding their exits.

BTW, I just noticed that I had passed the 200 post mark almost 2 weeks ago. It really surprised me. I've enjoyed watching Kiki and lot's of the readers to this blog achieve CP and greater profitability. I'm anything but a humble person much to my Mother's consternation but it really feels good to have made a difference. Thanks for all the feedback, please keep it coming as it motivates me to write the blog.


  1. Congratulations on 200+ posts. My trading has greatly improved thanks to your blog. I expect that the training will get me across the finish line into the land of CP. Can't wait for July 10th.

  2. Tom, could you explain, please, why you didn't even considered GAP trade today and taked long trade nr. 2 instead? How had you determined that market is strong and gap will not be filled? All the rules pointed to the short ~1064.75 ~ 15:10. thanks!

  3. I did take the gap trade but forgot to put it on the chart. I sold it against the VAH but covered just above yesterday's tail. Buying came in with a vengance. Yes, it met all the rules.

  4. I think the exits are dependent upon the market action/order flow. Or you could say it depends on the situation. Also I'm feeling that I want to be up nicely on the day before I see if a trade will continue to go in my direction for a lot of points. In other words, if I'm up 3 or 4 points on a trade and I think it may go more, I will let it go if I'm already nicely up on the day.

  5. EL a question regarding trades that appear while you are already in a position. How does your plan deal with that.

    for example, let's assume you have entered and Inside Out Trade and have achieved your first two scales and your stop is at entry plus a tick. then a valid set-up appears at the 33EMA and say VAL; do you enter a full 3 contracts; just top up an additional 2 or let it pass?

  6. Exits - the bane of my existence!
    I agree 100% with you Tom and I also suffer from not matching the exit with the personality.One alternative I have found is that on entering I keep a very close stop loss, once I get some profit going I move to break even.... and then I virtually have to turn the computer off and leave the only two exits possible for me break even, or the end of day. This will not work for everyone, but it stops me second guessing, feeding the brokers, and stressing. This exit is deliberately simple to match my personality.

  7. Bondi9, it all depends on how you setup your trading plan and risk management. My plan says I re-enter if I have a partial exit, maintaining my position sizing so my maximum risk is uniform. This happens a lot on trend days.