Part 9 - The exit

Many a profitable system can still lose over the long term if your exit is not finely honed.
We can exit out of a trade several different ways depending how aggressive we want to be.

But the exit is split into 2 categories.

The target which if hit will exit us
The stop which if hit will exit for us.

Lets deal with the target.

1. Do we want to use a static target for every signal regardless of the volatility of the market and the time of day ?
2. Do we want to use a flexible target that’s makes allowances for the market becoming more volatile ?
3. Do we want to use a technical target .ie if we go long 10 points below the high of the day..would the high of the day be a good target ?
4. Do we want a technical indicator to act as our target ie..if the trade moves in our direction and keeps on going..hence the indicator will do so always and increase our target automatically.
   
   Lets deal with the stop

1. Do we want to use a fixed stop that remains static no matter how far the trade moves in our direction?
2. Do we want to use a sliding stop that will follow our profit on the trade at a discrete distance?
3. Do we want to exit the position when a technical indicator tells us to do so?
4. Do we want to exit the position when the technical reason for us entering the trade no longer exists, ie we go long just above the low of the day and 5 minutes later the low of the day gets broken. Do you want to exit or hold ?
   
   One thing is for sure when looking at the above lists and one I think especially applies to the stop.

You have to exit clinically and quickly.

• Do not dither
• Do not think
• Do not make a new technical appraisal of the situation.
• If you are told to exit or the technical reason for you entering the trade no longer exist.. THEN EXIT.
  
  In day trading a thought process of 30secs could cost you hundreds of pounds esp if trading multiple contracts.
  
  This is where written rules play a big part. In my own trading my whole system is rule based and where possible black and white, try to think like logical programme and think only in black and white or red and green
  
  If A and B happen do C
  If C and D happens do E
  
  The rules will save you money and save your stomach lining
  
  Lets say you go long the market and you use a moving average to exit your trade, as soon as the price breaks down and closes below that moving average you MUST exit. Do not get caught in the emotional trap of trying to convince your self the price may well come back up. It may do .........but you need a black and white approach to get you out of a potential losing trade,and when your out and in no position the pressure is lifted and you can look for a new signal
  
  In my own trading..................

• I personally use a fixed stop that remains static no matter how far the positions goes in my favour.
• I use a dynamic target and expands and shrinks and the market expands and shrinks.

On the inverse signal for example - I use an ema to take me out of the position, or a signal in the opposite direction what ever comes 1st.If I am looking to close my inverse signal with a signal in the opposite direction I can only do so as long as I have permission by another indicator,if no permission even though I have had a reversal signal I stay with my original trade ..all rule based all black and white

With targets my own thinking along these lines are ..

If the market is oscillating in moves of 5 points do you want to take ½ point as your target ? .. No …ok so lets take 3 points after all that’s a nice profit thank you very much.

30 minutes later the market is oscillating in moves of 1 point… hmm .. Do I want to use my old 3 point target.. No ?…… the old ½ point looks good to me now.

We need a target that expands and contracts..

This way we can take figures like +1, +0.50 +2 +5 +0.80 etc etc all winning exits.

Move, change, experiment,consider........ but do it all with a set of rules..write them down laminate them and fix them near the PC