Are exits just guesswork? | Forex Factory

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Are exits just guesswork?

  • #1
  • First Post: Edited Feb 3, 2013 8:30am Feb 2, 2013 3:30pm | Edited Feb 3, 2013 8:30am
ideal scenario

we get in a trade on a lower timeframe e.g. m1 or m5, and we immediately put our stop loss near the swing point 15-16 pips or so to account for spread. We also set a profit target of 20 pips, a risk reward of better than 1:1. The trade starts to move in the direction we want, but we have no way of knowing how far it will go. Eventually we move the stop loss to break even minus two. So far, we can't lose much money on this trade.

Are exits just guesswork? Some trends are 40 pips, some are 10-15 pips or so. We want the ability to get the bigger winner. Having multiple entries won't be good as it will just increase our risk as it exposes us to many stop loss. Trailing stops wont work all the time, as markets don't always trend smooth..Trailing stops only work in smoothly trending markets ,not choppy market.

Should we just sacrifice the small winner(i.e. these will be break even) in order to get the bigger winners 20 pip plus?

Exits look totally guesswork, and its impossible to guess where the trend will end, as the market is unpredictable.

Should we just do 2 1/2 lot entries instead, to keep our risk level same whilst also allowing 1/2 exits?

i think that is the only solution to this dilemma, as no one wants to lose out on trends that last longer..
  • #2
  • Feb 2, 2013 4:41pm Feb 2, 2013 4:41pm
Don't trade on the smaller time frames, trade on the larger time frames (H4, D1...). It is quite easy to predict where the price will go on the larger time frames and you do not have to use tight stop losses and risk having your trades taken out by small spikes. Also, limit your use of leverage and avoid using EAs and lagging indicators to select entry points.
  • #3
  • Feb 2, 2013 5:25pm Feb 2, 2013 5:25pm
exits are not necessarily just guesswork. you may wish to check out this thread which has some good comments: http://www.forexfactory.com/showthre...41#post6414441

in my opinion it basically comes down to knowing whether you are range or trend trader, as well as knowing what type of lifestyle is right for you and how much time you can devote to watching the markets. some strategies are simple, just set and forget, others require more monitoring of hte market once you are in a trade.
  • #4
  • Feb 3, 2013 12:57am Feb 3, 2013 12:57am
No, exits are not guessworks and as for the trending market, it can reverse at any time. There are a few strategies that deal with exit points, just review some of the stickies in this forum, good luck!
  • #5
  • Feb 3, 2013 8:10am Feb 3, 2013 8:10am
Entries and Exits are all guess work
  • #6
  • Feb 3, 2013 11:01am Feb 3, 2013 11:01am
Quoting Halba
ideal scenario

we get in a trade on a lower timeframe e.g. m1 or m5, and we immediately put our stop loss near the swing point 15-16 pips or so to account for spread.
that is a seriously low time-frame. You may want to try higher time-frames. The high frequency trading bots can take you out pretty easily on such low time-frames. It doesn't take so much money to move the markets. However, stopping lots of people out on higher time-frames takes a lot of money. So, the lower your time-frame, the more you will be exposed to manipulation and these high frequency trades, that try to stop everybody out and make a profit.
Quoting Halba
We also set a profit target of 20 pips, a risk reward of better than 1:1.
that is based on what? what if resistance is just 5 pips away? You still will put a profit target 20 pips away? Foolish at best to put profit targets and/or stop loss levels at arbitrary levels without considering S/R.
Quoting Halba
The trade starts to move in the direction we want, but we have no way of knowing how far it will go. Eventually we move the stop loss to break even minus two. So far, we can't lose much money on this trade.
Of course we have no way of knowing how far it will go, that's where trade management plays its part.
Quoting Halba
Are exits just guesswork? Some trends are 40 pips, some are 10-15 pips or so. We want the ability to get the bigger winner.
40 pips, really? I wouldn't even wake up when I don't get at the minimum a 100 pip out of a move. Yeah, and I know that on smaller time-frames you can notch up the lot-size due to the small stop loss, but really due to the 50:1 leverage only, I wouldn't be able to get even close to the size (percentage-wise) I normally trade on high time-frames and again, the low time-frames are so extremely manipulated. It takes a hell of a trader to be consistently good on the low time-frames. You have everything against you: the bots, the professionals, the news events, the spread...
Quoting Halba
Having multiple entries won't be good as it will just increase our risk as it exposes us to many stop loss.
what? please explain. I don't know how you scale in, but when I scale in, then my first entry needs to be risk-free before I enter another trade. The risk actually is less than when you enter everything all at once.
Quoting Halba
Trailing stops wont work all the time, as markets don't always trend smooth..Trailing stops only work in smoothly trending markets ,not choppy market.
Obviously you need to differentiate between trending markets and range-bound markets. Trading 101.
Quoting Halba
Should we just sacrifice the small winner(i.e. these will be break even) in order to get the bigger winners 20 pip plus?
in trending markets: yes absolutely
in range-bound markets: no
Quoting Halba
Exits look totally guesswork, and its impossible to guess where the trend will end, as the market is unpredictable.
you try to predict too much, my friend. Trading is not about predicting. You identify the market condition you are in and exploit the trend in trending situations and scalp in range-bound situations. Trade management is key and different market conditions require different trade management strategies.
Quoting Halba
Should we just do 2 1/2 lot entries instead, to keep our risk level same whilst also allowing 1/2 exits?

i think that is the only solution to this dilemma, as no one wants to lose out on trends that last longer..
2 1/2 lot entries instead of what? and 1/2 exits, what should that be?
  • #7
  • Edited 4:44am Feb 4, 2013 4:07am | Edited 4:44am
Halba,

You have to attain a balance between mechanical and discretionary trading, that's right for you.

For example, I'm into trend trading, which means keeping my losses as small as possible (generally < 20 pips), and maximizing my winnings by letting most of my profits ride until my system tells me (rightly or wrongly) that the trend is over (sometimes > 500 pips). By "maximizing", I also mean stacking (adding) positions for as long as the move continues to show strength; and improving the probabilities further by also taking positions only in the direction of longer timeframe trends, and only in the pairs that are currently trending most strongly and cleanly. I'm also diversified across two or three different currencies, which has a smoothing (rather than a maximizing) effect on my P/L.

I realize that differs from the approach that you described, but my general point is that I've satisfied myself that I have a decent 'edge'. I have no idea which trends will last, and which won't, but past history shows me that, enough medium to long trends do occur on the longer timeframes, supposedly as macroeconomic factors play themselves out, so that over time I win more pips than I lose. That is the nature of an 'edge', and the big advantage of (semi-)mechanical trading: you simply repeat a proven strategy, which eliminates the need for any guesswork.

In marked contrast, discretionary trading involves a lot of guesswork. Sometimes exiting earlier is better, sometimes it's about letting profits run. With experience — after several hundred hours of chart study, and trading practice — your judgment can only become more educated. You won't necessarily know what will happen in every given situation, but you'll develop a feel, in certain situations, for what's more likely to happen than not; and (more importantly) gain knowledge of how to optimally cope, regardless. As an integral part, you'll probably develop a trade management methodology that involves cutting losses, moving SL to BE to gain a free trade whenever possible, and letting the winners play themselves out. Then add an entry strategy that delivers some kind of directional or behavioral bias, and you're home.
  • #8
  • Feb 9, 2013 1:28am Feb 9, 2013 1:28am
Quoting valdor
Don't trade on the smaller time frames, trade on the larger time frames (H4, D1...). It is quite easy to predict where the price will go on the larger time frames and you do not have to use tight stop losses and risk having your trades taken out by small spikes. Also, limit your use of leverage and avoid using EAs and lagging indicators to select entry points.
Can you share with me your trick in predicting where the price will go???Thank you
  • #9
  • Feb 9, 2013 8:48pm Feb 9, 2013 8:48pm
You could enter on smaller time frame and exit half your position at next support/ resistance , move to break even and then final target can be a higher timeframe support/resistance.
  • #10
  • Feb 12, 2013 4:25am Feb 12, 2013 4:25am
hi thanks to all the responses. i have totally modified my approach after thorough and detailed research the past few weeks

the main problem with my trading was looking at too many pairs on such a small time frame. it was getting me stressed and hard to think.

in the future i will stick to one time frame and 1 pair, for the trading week. A Good timeframe i found was the 10minute chart. It allows some trading opportunities, and less stressful than the 5 and 1 minute. Also the 1H timeframe looks very promising with 2-3 pairs.

The answer to my question is to cater the exit, to the pair's specific behaviour, Support and resistance and levels. The only problem with catering to the market condition, is that conditions change after entry. Prior to entry it may have been choppy, but after u enter it strongly trends, and you have a take profit order based on choppy condition(which is conservative). The pair blows right past ure TP level, and continues to trend strong..opportunity missed.

i am seriously thinking the 1H timeframe is the best in the long run, and much less stress than 1,5minute.

re hanover - " moving SL to BE to gain a free trade whenever possible, and letting the winners play themselves out." - yeah this is a good way to limit losses. Or a smaller tighter SL right behind the candle is another one. Usually the good trades run straight away after entry. But sometimes i find a BE SL can harm good trades, i.e. if you had a normal SL, you would not get taken out of a potentially good trend that developed later after the dip to BE level. so finding the right level to adjust to BE is a crucial decision.
  • #11
  • Feb 12, 2013 4:34am Feb 12, 2013 4:34am
Quoting FranCisc0
You could enter on smaller time frame and exit half your position at next support/ resistance , move to break even and then final target can be a higher timeframe support/resistance.
yeah S&R is a good method. higher timeframes are a good method in identifying i agree. but i will stick to one timeframe for the entry part.

i find looking at two different timeframes for entry is confusing as they conflict .so now on i will keep 1 lower timeframe, 1 higher timeframe(for l/t trend) and 1 pair on my screen maximum.
  • #12
  • Feb 24, 2013 12:23pm Feb 24, 2013 12:23pm
sometimes yes sometimes no..not every exit is a guesswork , with experience ones knows when to exit..
  • #13
  • Mar 2, 2013 7:37pm Mar 2, 2013 7:37pm
re- am looking at fibs to help me exit
its impossible to capture every pip

but i want to capture the big moves, 100 pips and above. as when they come they are extremely profitable. the problem is, in order to capture the big one, you never know when it comes, and you will need to sacrifice lots of small wins as either break even or stop loss.
  • #14
  • Mar 2, 2013 8:46pm Mar 2, 2013 8:46pm
There are a many different ways to choose an exit depending on the trading philosophy you have. The method I use is to exit at a pre-set target where I intend to encounter problems for further price advances, or even where I intend to reverse my position. Trading is always going to be a game of probability but the trading plan you put to action should never be based on random guesses.
  • #15
  • Mar 2, 2013 8:51pm Mar 2, 2013 8:51pm
Different systems, different techniques for everything..... once said that

I use a simple system to exit. Based on r/r. If my risk is 10 pips and r/r is 1:4, exit at 40 pip profit.

Exiting based on Price Action or Price Levels seldom worked for me, because by the time I realize it is time to exit, its already too late.
The Thief of Wall Street
  • #16
  • Mar 2, 2013 9:25pm Mar 2, 2013 9:25pm
Quoting Chicky
Different systems, different techniques for everything..... once said that

I use a simple system to exit. Based on r/r. If my risk is 10 pips and r/r is 1:4, exit at 40 pip profit.

Exiting based on Price Action or Price Levels seldom worked for me, because by the time I realize it is time to exit, its already too late.
Chicky, r/r is supposed to be calculated ahead of time, not after the fact. There should be some logic as to why you're exiting, and "I met my quota" isn't really something I've been all that impressed with for a rationale.

The price levels idea is meant to work something like this. Say we have a strongly trending market where we have price consolidating at multiple levels along the upwards trajectory. You pull a trailing stop one consolidation behind current price action, once you notice it. There should be plenty of time to do that.
  • #17
  • Mar 2, 2013 10:09pm Mar 2, 2013 10:09pm
Quoting Kanzler
Chicky, r/r is supposed to be calculated ahead of time, not after the fact. There should be some logic as to why you're exiting, and "I met my quota" isn't really something I've been all that impressed with for a rationale.

The price levels idea is meant to work something like this. Say we have a strongly trending market where we have price consolidating at multiple levels along the upwards trajectory. You pull a trailing stop one consolidation behind current price action, once you notice it. There should be plenty of time to do that.
This is what I said. You decide r:r before an entry. Set your risk and reward ........... and wait.

Most of the time, PA leaps in a few minutes and then ranges for hours and days. If you set good r:r and are at right place at right time, one such leap is good enough for several losses. A few such leaps before a losing streak will be good enough to take your account to a new level.

Most of the time, there would be many consecutive losses before and after a winner and return will balance out. This is how it works. A big win has some profit but most of it is a temporary loan from the market to be repaid back in instalments.
The Thief of Wall Street
  • #18
  • Mar 2, 2013 10:16pm Mar 2, 2013 10:16pm
Quoting Chicky
This is what I said. You decide r:r before an entry. Set your risk and reward ........... and wait.

Most of the time, PA leaps in a few minutes and then ranges for hours and days. If you set good r:r and are at right place at right time, one such leap is good enough for several losses. A few such leaps before a losing streak will be good enough to take your account to a new level.

Most of the time, there would be many consecutive losses before and after a winner and return will balance out. This is how it works. A big win has some profit but...
Sounds like the law of averages being played. Once you identify a potential turning point though you should look for a place that you would reasonably expect price to be able to reach before another turn. When I calculate my r/r I find the difference between my entry and that terminus and that's my ratio. In contrast what I got from your post was that you pick some ratio you want and set your target at that far away from your entry with no other consideration. If that's not what you were saying my most sincere apologies, you've been around here a lot longer than I have.
  • #19
  • Mar 2, 2013 10:29pm Mar 2, 2013 10:29pm
Quoting Kanzler
Sounds like the law of averages being played. Once you identify a potential turning point though you should look for a place that you would reasonably expect price to be able to reach before another turn. When I calculate my r/r I find the difference between my entry and that terminus and that's my ratio. In contrast what I got from your post was that you pick some ratio you want and set your target at that far away from your entry with no other consideration. If that's not what you were saying my most sincere apologies, you've been around here...
I think we are saying one and the same thing.

Do let me know if you think differently. Let me explain what I do most of the time. I wait for the pa to touch a key level (a fib, price level, historic or recent resistance/support, etc.). Once it touches that point, I expect a quick bounce for few pips. Set a TIGHT SL but NO TP. If it bounces 3x my sl (r:r 1:3 after spread), quickly bring sl to at least 2x (However, many time I just close at 3x or little more). If my 2x sl survive (which is very rare), I cash out when it stops progressing. Sometimes I get lucky and bank more than 8x or even 10x.
The Thief of Wall Street
  • #20
  • Mar 2, 2013 10:36pm Mar 2, 2013 10:36pm
Quoting Chicky
I think we are saying one and the same thing.

Do let me know if you think differently. Let me explain what I do most of the time. I wait for the pa to touch a key level (a fib, price level, historic or recent resistance/support, etc.). Once it touches that point, I expect a quick bounce for few pips. Set a TIGHT SL but NO TP. If it bounces 3x my sl (r:r 1:3 after spread), quickly bring sl to at least 2x (However, many time I just close at 3x or little more). If my 2x sl survive (which is very rare), I cash out when it stops progressing. Sometimes...
We do it differently; I set an entry limit, a stop limit, and a target limit well before price gets to the level I'm entering at. But whatever works for you as long as you're profitable, just different approaches.

Attached is an example for one trade.
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