Exit is more important than the entry

"Here's a tip for the newbies who are learning to trade.

Ignore all that hype for various systems. Remember--for now--this one fundamental rule: The exit is more important than the entry.

With that in mind, I want you to do the following on a demo account:

1) Toss a coin: Heads long, Tails short
2) Manage the trade as you see fit. If you think the trade is bad, exit.
3) When you exit a trade, go back to step 1.

If you can double your account in less than 50 flips, I consider you a good enough trader to go live. I personally average between 20 and 30 flips, and I do it once a week, on the weekends, trading simulated data. "

Very interesting advice from Ronald Raygun's member's profile.

It seems I'm really trying too hard to find good entry points rather than good exits.

Actually this is something I've noticed in a breakout strategy I've been testing on demo for the past month, a trailing stop is doing much better than a 1:1 RR on the same entries.

I would like to try Ronald's advice on a simulator this weekend. Can I try this on a 15 minute timeframe or should I go to 4H+?

Any comments on the importance of exits vs entries are welcome.

It wouldnt matter what TF you used, at the end of the day the coin decides if you go long or short at X point. If you where to be looking at a 4 hour TF or 15 min it would matter very little in your decisions. You floating P/L would give you enough of an idea of where the trade is at and your emotions will decide when to exit, that is when the pain is too much or the elation to great.

In the end the idea is very short sighted in that you have no idea really about where you believe price will go to because there is no bias if you just follow the coin. In that respect aiming for 2:1 or 1:1 would be about key and if you can get a trade past this point then you are doing your account justice.

Razor

That's what I say for a long time now. The entry is not that important. But 95% of all systems just try to predict a precise entry and often leave the (more important) exit to the trader.

Great drill to learn trade management and not being loyal to your trades.

Your in a downtrend and you keep getting buy signals, do you stay with them, or exit as soon as possible?

Great way to learn trade management.

I found most of my early trades would start off well and then end up as small losses or small profits. The problem is that if you listen to an instructor, he will spend 3 or 4 times as much time talking entry as he will exits. At first, I thought it might be because entries were so much more important, but I now think that they were instructing in their comfort zone ie. they really didn't have much expertise with exits.

I am getting better with experience, but just when I think I have a solid strategy, it starts to fail. I used to set my stops too tight, but have learned to not to. One of my weaknesses has been trying to catch the last 20% of the move ie. not being satisfied with the middle like most experienced traders advise. I would get more upset by not catching that last few pips than if I was late into the trade.

If anybody has the definitive exit strategy, I am eagerly awaiting to hear from them. This is a terrific topic.

Here are a few simple and effective exit strategies.

1. exit a short when you have made a lower low swing and exceeded the high swing that just preceded that lower low swing. Reverse it for a long exit.

2. Use a Gann zigzag ( included below) and exit when the ZigZag changes direction.

3. Exit on a preset ( for me 4 ) number of low bars back from the Highest point for a long and the opposite for a short, and just keep trailing the bars.

4. Exit on a run of 7 consecutive bars making higher highs for a long and the opposite for a short.

5. Take half of your trade off at each valley or peak, for short or long and then close the remainder of all your trades when the trend changes.

6. Use a 123 pattern for exit your trade.

Generally, I just use option one and 3 and 6; mostly one unless the market I am in is not trending well, then I use 3 and 6. All of these work very well, though.

In my experience, I have found exits are more important. However, I must be upfront and say that I do not scalp, or trade smaller time frames. I believe that entries are much more important on the short term trader's point of view than mine. It is not rare for me to have a 150 pip stop loss. Some people do more like 30. Entries are certainly more important then.

As for exits, I have found "tucking them behind others" is the best way to do it most of the time. You find that most of the time it will do alright, and every once in a while - you will gain so much more than you anticipated. But the trick is that you have to let them have a chance of surprising you.

Another good thing that helps with exits is not being there watching it. But that's psychology, and different.

A lot of mentors and instructors will hem and ho about exits, because they simply have no idea. Or you will notice that they can show you after the fact that price "X" was a good place to take profits......but overlook the fact that they just risked 150 pips to gain 50. Things like that typically are obvious to spot for those of us that have been around for a few. For the new guy, it appears to be "magic" or something......

The thing about reading something from Ronald's line is that he isn't even human. He's like 14 and trading at RBS.

Chris

To the folk who say entries are unimportant: do you mean only the timing of the entry, or the direction (long or short) also? If you mean both, then I assume that you don't perform any analysis (fundamental or technical), LOL. From Ronald's quote in the first post: "toss a coin, heads is long, tails is short".

IMHO the learning exercise underlying Ronald's point is extremely valid: trying to gain an edge through trade management alone is extremely difficult. Taking high RR trades, or otherwise letting profits run while a trend persists, does not necessarily in itself provide a significant long-term edge (see point #33 in Jimmy Young's list here, for example). If we dare to take Jason Fielder's research seriously, price trends approximately 30% of the time, in all timeframes.

Here are some points for your consideration. I'm neither knowledgeable nor bold enough to state categorically that they're correct...... just ideas that IMHO are worth thinking about:

 

1. The fact that mentors and commentators spend more time discussing entries doesn't automatically mean that the golden key must lie with exits. Exits are tough psychologically, no question, because we have money at risk. But what about methodologically? Isn't it possible that where the debate is most contentious, that suggests that the factors involved hang more delicately in the balance, and are therefore less likely to provide a significant edge?
   
2. The market doesn't care whether I'm entering or exiting. Hence, in terms of trading probabilities, exit is really nothing more than the inverse of entry; if one is scaling in or out extensively, or 'nedging' (offsetting longs and shorts in the same pair), then what constitutes an 'entry' or an 'exit' becomes essentially moot (more here). If it's possible for analysis to give one a directional bias as to which way to enter, then one should exit when that directional bias is no longer valid.
   
3. Four of the most widely touted methods here at FF all involve an entry strategy. Assuming that I understand correctly, James16 uses candle types to enter on rejection of key S/R points; BillyRayValentine times his entries around 'quality' S/R; Jacko trades in the direction the prevailing trend and uses a re-entry technique when price retraces favorably; DIBS involves entering on the breakout of an hourly IB in the direction of the daily move. In marked contrast, there have been a number of coin-toss threads started here; none have lasted longer than a couple of months.
   
4. Whether entry or exit is more important depends on one's method. I would generalize that entries are more important for scalpers and news traders, and less important for those who hold more fundamentally-based, longer term positions. It also depends on viewpoint. Example: price bounces at support, just like I predicted. I'd set a 20 pip stop, and managed to catch an 80 pip move for a 4:1 RR trade. If I'm exit-focused, I could argue that my bottom line is helped by the fact that I rode a high RR move. If I'm entry-focused, it was the entry at the support that made the tight SL possible (creating the possibility for high RR), and also 'caused' the bounce.
   
5. My posts here and here.

I feel the entry is infinitely more important than the exit. The exit is important too but not on the same level of importance that I give for entry. I can use a trailing stop to lock in profits if I didn't know how to exit but if I dinged in my entry i'm dead before even I begin. Am I wrong?

This seems something worth thinking about. I trade the 1', right now more scalping than anything, and wish to stop scalping so much.

I usually define a solid entry and unconsciously finalize a framing of the area in which my trade will be. Then, once I enter the trade and watch the move more, I 'hope' the move will go to the other side I now can consciously define, while I watch the invisible tick adjust candles along my trade's path. When the price-time line takes a significant break and I have a decent profit, I exit.

Sometimes the line stops early and stalls where I didn't consciously expect it to; other times significant in-trade drawdown makes hanging onto my original reason to enter the trade all that more important to reconsider. In these two latter cases, I have to grin and bear it, whichever way seems right.

There are several excuses for not doing the right thing, that of laying forth a reason for the entire trade and detail reasons for each of the entry(ies) and exit(s). One, because the in-trade drawdowns are more emotionally difficult and test the trade's initial reason to its limits, I suppose I tend to stay close to the original entry. Two, it often doesn't 'feel' right, to declare an entire trade prior to entry, because, it's sensible that you enter using the smallest detail that feeds most-directly off the main reason to make the trade.
Three is another bias of considering entries before exits: All that energy spent making a reason to enter the trade at all often exhausts oneself, so that the detail reason for each of the entry and, especially, the exit, get neglected, causing drawdown from the former and a speedy exit from the latter.

That's why my indicators are precise, to do low-pip trades in exchange for low in-trade drawdown. Then, detail reasons for entry and exit turn less relevant, especially when I can consciously make a technical indicator (work) for each of them and thus avoid more work, that is, avoid devoting my full attention (at the cost of a possibly high emotion) tick watching / close candle work, for less pay.

you want to have a entry to EXIT where you can close the trade with profit. It is almost the same thing. If you have a entry with fantastic hit rate you can toy with any exit that you will end in profit. To do not try to have a better entry is for people flatout retard.

in another thread like this i already read that there are many high propability patterns, signals that "aways go in your direction" so all you need is a good exit. Well, give me setups that aways go 10 pips without go 10 pips dd and i will make 25 billions in the next week.

SmJones, thank you so much for posting these! This is one of the most useful posts I have ever read. You contribute a lot to the forum; thank you for sharing your knowledge!

thanks for share this too.

the first pic is correct? if i am long at the time of the bar highlighted with the vertical blue line, then my stop is at the horizontal blue line and same with yellow and red.



in the second pic i think pink is the correct for your exit #1. For the exit #6, 123, i am not sure. For some people the green is a 123 pattern, but for a 123 like Joe Ross i believe the most correct would be the aqua line. What is your criterion (for 1 and 5 TF for example)?


best regards.

EDIT: deleted the second pic as smjones explain in detail the exits in his post below

See my notes on the picture. You are correct. Generally I use the #1 approach, because I want to give the trade room to breath while trending and if the swing is broken, that is by definition a trend change. the one circled is how I define a 123. I don't know what the green line represents, because the entire move there is inside the significant high and the significant low. That just looks like range bound choppyness.

I don't see how Time frames make any difference to the pattern. If you are trading a 5 minute, then that is the trend for a 5 minute time frame. If you are trading daily, then that is the trend pattern for a daily time frame. Some say one has more noise than another, I see more as one moves faster than another. Now, whether it is profitable to trade the faster movement depends on one's method and their expenses associated with the trade.

many thanks Scott.

While I am not a programmer, I've spent the better part of 3 years, testing and going through the codes of literally hundreds of mq4 indicators. I've long since come to the conclusion, that, the indicator that gives a good entry never gives a good exit on the flipside. Typically you will lose most of the earnings you gained, by the time you get an exit signal. , maybe that's why my auto-reverse EA's diddn't do so well. LOL

That being said, I've found the T3MA a very good exit indicator. If , you're in a buy and price closes below the T3MA, it usually signifies the end of the current trend, vice versa for shorts.

Now, since I can't guarantee that price will really trend and not just do a quick whipsaw, I also use a trade management program to close part of the order at specified pip levels and move the rest of the order to "entry +1"

ALL: thank you, thank you for sharing your knowledge on this.