Exit Strategies | Forex Factory

Options

Permalinks
Print Thread

Similar Threads

Exit Strategies discussion 10 replies

Exit strategies? 5 replies

Need help with exit strategies 13 replies

Exit strategies??? 3 replies

Exit Strategies for Taking Profits 3 replies

Exit Strategies

  • #1
  • First Post: Nov 27, 2007 8:16pm Nov 27, 2007 8:16pm
Many if not most of the systems I have found focus mainly on entry signals, how to enter the market. Most are very vague or general when it comes to exiting your position.

So the question I would like to address in this thread is:

What are the best exit strategies and in what situation would you use them?

The good trrade books out there say the key to success in trading is to let profits run and cut losses short. This doesn't have anything to do with the entry, it has to do with the exit. Exactly how do you let profits run and cut losses short? Many say this is far more important than the entry strategy.

Hopefully we can throw around some ideas and come up with the best exit strategies for each trading situation:

Taking profits
Cutting losses

For:

Scalping
Long term trend trading
Swing trading

etc.
  • #2
  • Nov 27, 2007 8:33pm Nov 27, 2007 8:33pm
I use three exit strategies for each trade. My style uses mostly price action with a couple of SMA's to assist.

1/ Take profit at twice the risk
2/ Manual trailing stop after dips
3/ Wait for a reverse signal then move stops incase the trend changes.

Essentially I see this as a hedge type strategy as different market conditions change how much each exit strategy makes. Over a long period there are differences but this helps keep the pips rolling in... for me.
  • #3
  • Nov 27, 2007 8:42pm Nov 27, 2007 8:42pm
It is hard if not impossible to pick a top or a bottom when trading, so here is what I do:

I scale out of a trade by manually trailing stops.

How?

Have multiple positions open on the same market move (say 4 mini lots), and close each in different areas. I trade mostly GBP/JPY so I will use this as an example.

The trade goes in the money 10 pips, place a stop at breakeven on one mini lot.

It increases to 20 pips, put stop at breakeven for the rest and move stop for first one up 10 pips (trailing market action by 10 pips).

As the market continues moving I move stops along with it. It becomes subjective on how close to trail the stops, based on how volitile the market is acting at a given time. If it is not very volitile then tighten the stops, if it is very volitile then have wider stops for more cushion.

When the market movement is slowing or reaching what appears to be an extreme overbought or oversold condition, I tighten the stop on the first mini lot, first to 7 pips behind market, then 4, then 2, then it gets stopped out for a profit.

While I do this I also move the other stops tighter, in a scaled fashion, to lock in profits. Such as have 1 stop 10 pips behind market, one 15, one 20, etc for all the rest of the mini lots.

if the market gives a sign of reversing then I tighten up the stop for the second mini lot just like the first one until it is stopped out.

The other 2 mini lots I want to keep in the market just in case the market is just stalling or experiencing a minor retracement before it continues in the same direction. If this is the case, if it turns in the same direction again, I follow the market trailing the stops and repeat the process as the first 2 mini lots.

The last mini lot I keep some distance between the stop and the market action to be sure that the market has really reversed in order for the stop to be triggered.

Many times I can ride a market wave from the beginning to the very end this way, without exiting prematurely.

If you don't do this, then sometimes what happens is you will exit the positon when it looks like the market move is over, only to find that it continues in that direction 2 or 3 or more times farther then the first part of the move, and miss out on a lot of pips!
  • #4
  • Nov 27, 2007 8:43pm Nov 27, 2007 8:43pm
For scalping I have one main strategy for exits.

I close the trade on the first candlestick that closes opposite my trade on the 1 minute chart.

I usually have problems with closing trades too early on longer term trades due to the retracements and miss out on a lot of pips.

edit: And I always use trailing stops above the last closed candlestick to lock in profits incase of a spike against me.
  • #5
  • Nov 28, 2007 6:19am Nov 28, 2007 6:19am
I think the exit strategy needs to be changed depending on the time-frame you want to trade.Obviously different time-frames require different stop levels and have different probability of getting hit.If you trade a small time-frame with a 50 pip stop you will get hit more frequently than someone trading a bigger time-frame with a 400 pip stop
  • #6
  • Nov 28, 2007 7:40am Nov 28, 2007 7:40am
In my opinion there are two main ways of building your exit strategy:

1) Pre-assigned targets, which usually use levels of support/resistance ahead of your entry point to pre-define your exits.

2) Reversal signals, triggering the exit when you get a signal (according to your system) against your current position. MAs crossovers and Trail Stops in a way fall into this category too.

Some people like to mix them, exiting a portion of the trade at a level of support/resistance ahead and then letting the second half run until a reversal signal is given.
  • #7
  • Nov 28, 2007 11:47am Nov 28, 2007 11:47am
It's simple really. You don't trade beyond the edge of a set (a fractal pattern within the Absolute Fibonacci Framework) that the currency is working on at any time. The edges of sets are strong barriers, so they slow, stop or turn there.
The framework is there; we just have to work on our frame of mind.
  • #8
  • Nov 28, 2007 2:33pm Nov 28, 2007 2:33pm
Quoting niceguy777
It's simple really. You don't trade beyond the edge of a set (a fractal pattern within the Absolute Fibonacci Framework) that the currency is working on at any time. The edges of sets are strong barriers, so they slow, stop or turn there.

I don't have a clue what you are talking about. Can you elaborate more or perhaps post a link to a thread that explains this in more detail please?
  • #9
  • Nov 28, 2007 3:32pm Nov 28, 2007 3:32pm
Quoting Jared
I don't have a clue what you are talking about. Can you elaborate more or perhaps post a link to a thread that explains this in more detail please?
I guess you don't! I'm not trying to confuse - actually I hope to make things simpler for traders, but some take longer to take notice than others!

The currencies don't create the patterns. They operate within a fixed framework that is fractal in nature and based on the Fibonacci. I have called this framework the Absolute Fibonacci Framework. The movements of currencies go through complete sets of fib proportions within certain fractals at different times. The movements are fluid, so you need to be tuned in to which fractal a currency is moving on at any time. When you can see that, you can tell how far it will go before it stops or turns. Sometimes you can identify big moves before they happen, sometimes smaller ones, depending on volatility.

Once you can read the Framework, you can tell how quickly a move will go, how far it will go, and where it will stop. So it's quite useful. Much more so than any other indicator I have ever used, because it doesn't lag behind and isn't created by previous moves. It's also simple, and you really don't need any of the list of fancy methods that are shown here or in the trading systems part of this forum to be successful. The only other thing you have to do, is make sure your mindset is in the right place, and then you can trade....
The framework is there; we just have to work on our frame of mind.
  • #10
  • Nov 28, 2007 3:54pm Nov 28, 2007 3:54pm
Quoting niceguy777
I guess you don't! I'm not trying to confuse - actually I hope to make things simpler for traders, but some take longer to take notice than others!

The currencies don't create the patterns. They operate within a fixed framework that is fractal in nature and based on the Fibonacci. I have called this framework the Absolute Fibonacci Framework. The movements of currencies go through complete sets of fib proportions within certain fractals at different times. The movements are fluid, so you need to be tuned in to which fractal a currency is moving on at any time. When you can see that, you can tell how far it will go before it stops or turns. Sometimes you can identify big moves before they happen, sometimes smaller ones, depending on volatility.

Once you can read the Framework, you can tell how quickly a move will go, how far it will go, and where it will stop. So it's quite useful. Much more so than any other indicator I have ever used, because it doesn't lag behind and isn't created by previous moves. It's also simple, and you really don't need any of the list of fancy methods that are shown here or in the trading systems part of this forum to be successful. The only other thing you have to do, is make sure your mindset is in the right place, and then you can trade....
Ok, sounds good. If there was that organized of a structure in the markets that would be wonderful. Can you prove it with an example or a chart please? If you are really trying to help hopefully you will offer more explanation and proof so we can learn. How long have you been trading with your Absolute Fibonacci Framework and at what success rate?

Please show a working example.

I use fibos as well but not by themselves, only to get an idea of the probablility of where a retrace will occur or end. If the market hits a fibo level, I watch closely for a reversal which if confirmed I exit (or enter).
  • #11
  • Nov 28, 2007 5:22pm Nov 28, 2007 5:22pm
Quoting Jared
Ok, sounds good. If there was that organized of a structure in the markets that would be wonderful. Can you prove it with an example or a chart please? If you are really trying to help hopefully you will offer more explanation and proof so we can learn. How long have you been trading with your Absolute Fibonacci Framework and at what success rate?

Please show a working example.

I use fibos as well but not by themselves, only to get an idea of the probablility of where a retrace will occur or end. If the market hits a fibo level, I watch closely for a reversal which if confirmed I exit (or enter).
A single chart example won't 'prove' anything to you or anyone else. There's a bit more work you have to do to get an understanding of this, and I am always very happy to explain this to people. I put on free webcasts as that is a better way of doing it. Then you will see. The next one is on Tuesday at 9.00am PST, and after that I'll arrange another one. I hope you join us.

It's been available for the last two years, and it has been very successful with those who do the work and gain a good understanding of it.

Just as a matter of interest, I can also show you on the webcast why it is that fibos applied the traditional way sometimes seem to work better than at other times.

Bear with me, it's very clear when I can show you properly.

The framework is there; we just have to work on our frame of mind.
  • #12
  • Nov 28, 2007 5:34pm Nov 28, 2007 5:34pm
I would have to agree with Jared on possibly providing a chart or two to explain the fractal fib framework concept. I hope this thread is to educate, assist and share. From this we can all learn and maybe further develop our 'super strategies' with the addtional shared knowledge. As for exits, I feel it's important to know what stage of a move you have entered in to. I am not an E wave specialist and use fractals as part of my entry criteria, however most moves will contain '5' up/down fractals. If you enter at fractal 3 (the high of wave 3) or higher the move is weaker and it is there we should be paying closer attention to price behaviour and divergence to confirm this. 'Where to exit' is the big question as looking at a live chart is 100 times harder than looking at an historical chart. Fixed exits will sometimes make you feel as though you have caught all of the move and confirm your exit for a few bars and then whack the market goes another 50 pips, at this stage you are kicking yourself and in doubt until the market dives 100 pips and your back to feeling good! So I guess confidence in your research must prevail and confirming at what stage of the move you have entered wil definately help. Fixed profit targets are great for confidence and the bank! As long as you set them slightly above the average daily range to catch spikes intraday and for longer term adjust them to reflect market volatility. Look for diversity between ma's and price and divergence bars, higher highs,lower lows but closing below/above previous close. These relect 'panic' and often you see people scrambling to cover/close positions. If the market is moving ahead of itself too fast it will always pause or correct/retrace. The old '3 bar back' low/high exit will definately keep you in a trend,that coupled with profit targets should be sound. Profit targets alone create an area discretion. Do I place my sell order at the target price? 10 pips below just incase it misses the target? As for me I have 4 exit rules in the following order of importance
1. divergence bars, (stop above high of this bar / below low of bar) making new highs/lows but closing lower/higher than previous.
2. 3 bars back
3. MA histogram change of direction ( I move my stop to the low of the first change bar in the histogram)
4. Profit targets reflecting the reality of what we can expect to achieve out of any move based on recent market volatility

Well thats my two cents worth!
  • #13
  • Nov 28, 2007 5:46pm Nov 28, 2007 5:46pm
Quoting traderboy
I would have to agree with Jared on possibly providing a chart or two to explain the fractal fib framework concept. I hope this thread is to educate, assist and share. From this we can all learn and maybe further develop our 'super strategies' with the addtional shared knowledge. As for exits, I feel it's important to know what stage of a move you have entered in to. I am not an E wave specialist and use fractals as part of my entry criteria, however most moves will contain '5' up/down fractals. If you enter at fractal 3 (the high of wave 3) or higher the move is weaker and it is there we should be paying closer attention to price behaviour and divergence to confirm this. 'Where to exit' is the big question as looking at a live chart is 100 times harder than looking at an historical chart. Fixed exits will sometimes make you feel as though you have caught all of the move and confirm your exit for a few bars and then whack the market goes another 50 pips, at this stage you are kicking yourself and in doubt until the market dives 100 pips and your back to feeling good! So I guess confidence in your research must prevail and confirming at what stage of the move you have entered wil definately help. Fixed profit targets are great for confidence and the bank! As long as you set them slightly above the average daily range to catch spikes intraday and for longer term adjust them to reflect market volatility. Look for diversity between ma's and price and divergence bars, higher highs,lower lows but closing below/above previous close. These relect 'panic' and often you see people scrambling to cover/close positions. If the market is moving ahead of itself too fast it will always pause or correct/retrace. The old '3 bar back' low/high exit will definately keep you in a trend,that coupled with profit targets should be sound. Profit targets alone create an area discretion. Do I place my sell order at the target price? 10 pips below just incase it misses the target? As for me I have 4 exit rules in the following order of importance
1. divergence bars, (stop above high of this bar / below low of bar) making new highs/lows but closing lower/higher than previous.
2. 3 bars back
3. MA histogram change of direction ( I move my stop to the low of the first change bar in the histogram)
4. Profit targets reflecting the reality of what we can expect to achieve out of any move based on recent market volatility

Well thats my two cents worth!
I would say that it's more that two cents! Very interesting.

I would like to confirm that my intention is to help through education. I have learned over the last two years though, that when traders have not experienced the framework in the context of a proper explanation, it really doesn't help to throw in a few charts, and it only serves to confuse. So I don't do that any more. I would love to have the opportunity to explain it on a webcast though - and that is not a sales pitch! That way, you will appreciate what I am talking about much more.

It's a very different way of trading, and a very different tool to anything else you will have seen. So the rules and assumptions and experience that most traders make prior to seeing it as irrelavent, and the arguments that people get into about it on forum threads can be frustrating and pointless when the opportunity is there to simply find out about it, rather than theorize as to its validity or try to assess whether or not I am bullshitting!

So I hope you join us on Tuesday. It's just an hour, but I know you will find it interesting!
The framework is there; we just have to work on our frame of mind.
  • #14
  • Nov 28, 2007 6:02pm Nov 28, 2007 6:02pm
A fellow brit by the sounds of it! I'll check the webinar out.
  • #15
  • Nov 28, 2007 6:04pm Nov 28, 2007 6:04pm
Quoting traderboy
A fellow brit by the sounds of it! I'll check the webinar out.
Darn. I've been rumbled! It must have been the 'bullshitting'.

I live in Vancouver now though, so 9.00am with me is, er, maybe 5pm with you?

Drop me an email and I'll send you an invite.

The framework is there; we just have to work on our frame of mind.
  • #16
  • Nov 28, 2007 6:11pm Nov 28, 2007 6:11pm
I'm in NYC so 7pm ish, what's your email?
  • #17
  • Nov 28, 2007 6:13pm Nov 28, 2007 6:13pm
You've perked my skepticism, but also my curiosity. I'll check it out. I have an open mind.
  • #18
  • Last Post: Nov 28, 2007 6:40pm Nov 28, 2007 6:40pm
Quoting traderboy
I'm in NYC so 7pm ish, what's your email?
If you are in NYC, it will be 12.00 noon, I think.

My email (written out) is info at leftbraintrading dot com.

I look forward to talking with you and Jared.

We use GoToMeeting for the visual and Skype for the audio, so I'll need your Skype ids. Also, headsets stop feedback which is annoying for everyone....
The framework is there; we just have to work on our frame of mind.
0 traders viewing now