Time to Exit- You Have to Know When to Hold Know When to Fold Them

Never sit with your back to the door (and other exit strategies)

Most new traders spend far too much time focused on where to get into the market ' or worse yet, how much money they are going to make ' and far too little time focusing on where to exit the trade, whether with a nice profit or small loss. A good exit strategy is a critical part of successful trading. Trading coach Van Tharp said, 'Your exits will make you rich'. Maybe. But one thing is for sure: They are the key to surviving and thriving.

When planning an exit strategy you must consider the good, the bad and the ugly. In other words, have a strategy for protecting and capturing profits, for getting out of losing trades as quickly as is reasonable, and for reacting to a disaster such as a huge gap down at the open. Because if your exit strategy isn't in place before you enter a trade, you risk acting on emotion as price starts to move and adrenaline starts to pump, and good decisions are rarely made under those circumstances.

 Your planned holding period for any trade should determine how you take profits. Always capture a profit that corresponds to your holding period, which should be determined before you enter a trade. If you generally hold for 2-3 days, and you catch a nice 2-day move and the market stalls on the third day, get out! Don't be greedy.

 Your holding period and profit target also should be considered when determining where you place your stops. Your stops should be tight enough that your winners will be far more profitable than your losers in the long run.

 Technical levels such as support and resistance should also be used to determine stop placement. We generally use intraday levels and shorter-term charts, such as the hourly chart, to determine where to place our stops. Other stops can be the high or low of the previous day.

The exit strategy is very simple in this situation: get out as soon as price breaks support on a long trade, or resistance on a short sale. This may sound simple, but there are two problems. First, many of us lack the discipline to take losses when they should be taken. Second, many of us don't understand how to place stop losses in the first place.

The bottom line on stops is this: take your loss when the market says you're wrong. Every setup has a trigger that violates the pattern you intend to trade. Identify this price in advance, and place your stop just behind it. Remember that this magic number changes dynamically with each new bar, so you need to adjust it often. But don't remove it under any circumstances.

Also be aware that every market, whether a stock or forex pair, will violate support/resistance up to a point before reversing. Your analysis must consider the stock's underlying volatility, so the stop can be placed outside this 'market noise.'

About the Author

CFD FX Report is a real time tool for clients with an interest in the trading of stocks, indices and commodities globally.CFDs (Contracts For Differences) are one of the worlds' fastest growing trading instruments that allows clients to profit from a rising and falling market. The CFD FX Report is a company comprising of expert traders that analyse the market daily and are able to make recommendations for the following day trades based on this analysis. The CFD FX Report is released everyday at 6.30 p.m. (Singapore time) for review by the clients for the next trading day.
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About the Author:

CFD FX Report www.cfdfxreport.com is a real time tool for clients with an interest in the trading of stocks, indices and commodities globally.CFDs (Contracts For Differences) are one of the worlds' fastest growing trading instruments that allows clients to profit from a rising and falling market. The CFD FX Report is a company comprising of expert traders that analyse the market daily and are able to make recommendations for the following day trades based on this analysis. The CFD FX Report is released everyday at 6.30 p.m. (Singapore time) for review by the clients for the next trading day.
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