Exiting a trade?

[jd1888]

Hi all

I'm sure we could all think of a million reasons for getting in a trade like bounce of support/resistance, ma cross or whatever but what is the best way to exit a trade apart from the obvious of being in profit. I mean would it be the opposite signal for your entry, a good risk/reward ratio or what?

I always watch as the market rushes past a 1:3 risk/reward ratio and sometimes an opposite signal may be just a bit late for a good exit.

I hope my question will help me and others find our way.

Thanks

 

[Rhody Trader]

Your exit should be based on why you put the trade on in the first place. If it was a trend trade, then you get out when you've got sufficient evidence the trend is over. If it's a range trade, you get out when the market has moved to the other side of the range, or has indicated it won't be doing so. Of course the trick is figuring out what the best form of evidence things are over is.

 

[jd1888]

Thats a good answer. Are you applying this to day trading?

Quote "Of course the trick is figuring out what the best form of evidence things are over is."

That was kind of what I was getting at I find it hard to tell when its over, my trading system/rules gets me in at rather good entry spots but they don't show me a good exit spot. I'm having some trouble trying to get this part as good as the entry.

I thought a good risk/reward ratio would be best, but this cuts really good moves far short which is the opposite of what should be done.

Today a long signal on GBP/USD at 7:40am GMT @ 1.60243 would have had a risk of 10 pips so a risk/reward ratio of 1/3 would have given 30pips not to grumbled at I suppose but that move went to a high of roughly 1.61400. Obvouisly that would have been the very top and getting out there would have been fantasic but pretty impossible to tell that that was the top.

I would like to have some way of getting more out of move like this.

 

[HowardCohodas]

Read It's When You Sell That Counts by Donald L. Cassidy now in it's third edition. I own the first edition published in 1994.

 

[jd1888]

Thanks for the reply Howard. I wil certainly look at that.

Have you been in a similar situation?

 

[Rhody Trader]

Thats a good answer. Are you applying this to day trading?

It applies to any timeframe.

I thought a good risk/reward ratio would be best, but this cuts really good moves far short which is the opposite of what should be done.

Risk/reward is a metric of performance. It shouldn't be viewed as an exit rule because it has no grounding in what the market's doing, or likely to do.

I would like to have some way of getting more out of move like this.

To get bigger moves you generally have to risk giving back more of your gains.

 

[jd1888]

Hi Rhody Trader,

Thanks for the reply.

Quote "Risk/reward is a metric of performance. It shouldn't be viewed as an exit rule because it has no grounding in what the market's doing, or likely to do."

Thank you for inlightning me I tought thats what it meant, it just shows that there is always something to learn. I now makes more sence to me that you put it that way.

Quote "To get bigger moves you generally have to risk giving back more of your gains." I take your point onboard and I think I might be heading in the right direction now.

Thanks for the help.

 

[HowardCohodas]

Thanks for the reply Howard. I wil certainly look at that.

Have you been in a similar situation?

Developing an exit strategy is, for me, harder than the other two phases, i.e. entering and adjusting. I remain a perpetual student of this subject.

 

[Pi3141]

I often find it difficult to exit a trade too. It's all very well to say exit according to a 1:2 or 1:3 R/R ratio or to exit when your system signals an exit, but what if the market never reaches your profit target or an exit signal doesn't show up? For example, the other day I entered a trade, 20pt stop loss and the trade went as far as 14pts in my favour. My trading system did not signal an exit, nor did the trade hit my profit target. In the end, the market reversed (14pts was as far as it went) and it ended up hitting my stop loss. It's moments like these that Im really struggling about what to do.

 

[Rhody Trader]

If all you have is a profit target and a stop loss, then you don't have a fully worked out exit strategy. You need to have something in there that gets you out when the conditions under which you entered the trade in the first place are no longer valid.

 

[HowardCohodas]

Have you been in a similar situation?

In my previous response I forgot to add that my current trading strategy largely, but not completely, simplifies the exit decision. I now, almost exclusively, trade option credit spreads. Options die at a date certain.

My exit decisions are now pretty simple.

1. My loss exceeds my preset limit.
2. The underlying is within gap range of the short option on the last trading day.
3. A good roll opportunity presents itself.

Otherwise, the option dies worthless and I keep the credit.

It was still worth the time studying when to sell so intently for so long.

 

[spinola]

Beanz Meanz Pips !

Here is my take on things,

If you understand why you are entering a trade, you'll know when to exit it. (leaving aside any individual neurotic human behaviour, technological interferences )

This pondering seems to crop up all the time and to help a trader get to a point from which to progress I would ask them this,

Do you believe the markets are random or not , or are you not really bothered in knowing that ?

I say this because once a person is aware of his natural internal driver in pursuit of knowledge of his/her subject in focus, then it may help in them being suited to developing a particular fundamental strategy with fits their personality looking outwards at the subject matter.

I also think if a person is not aware of this, then I wouldn't be surprised to see erratic emotional driven decisions surfacing, as the internals actions of an individual have no solid belief foundation on how to manage the external fluid actions that the market will continually throw your way.

So personally I would want to get this awareness set at the earliest opportunity within the individual. And yes, it may often be that the trader says, "Hey , I just don't know the answer to that yet." And at that point, I would advise that they need to find it (the answer) before they can expect to make solid progress based on understanding that their internals now are ( at least )aware and are therefore more comfortable and expectant, of how to manage the external market incoming.


I'll call it the "Matching Principle" .

I mean its all about how you cook your beans. Some people will use a microwave, slam them in nuke the hell out of them, hot over cooked beans here stirred in with luke warm beans there, hey that's cooked beans right ?

Well for them yes, maybe their internals are happy with that,maybe they are not aware of any other way, but I couldn't cook my beans that way, nor do I , as I understand it impairs the beans performance, so my internals drive me to cook the beans in suitable sized pan over a steady controllable flame, gradually heating the beans evenly .

That's how I must cook my beans , understanding the ingredients and the energy forces applied to them, and how the beans are likely to react in that environment !

If you want to understand the market and trading, first understand beans and baking them.


Just my beans into the pot.

 

[jd1888]

If all you have is a profit target and an stop loss, then you don't have a fully worked out exit strategy. You need to have something in there that gets you out when the conditions under which you entered the trade in the first place are no longer valid.

This is kind of my problem too. I need my entry and exit to be kind of rigid/automatic (maybe not quite what I mean, but I can't think of another way to describe it) because when I trade my psychology at the moment has me p**sing about with trade for one reason or another and I end up exiting at a small profit or loss only to see price go in my direction for what could have been a great profit. This is very frustrating because I know the signal for getting in is usually good.

I think I need to try and get over the psychological issues before I can be a bit more flexible.

 

[HowardCohodas]

This is kind of my problem too. I need my entry and exit to be kind of rigid/automatic (maybe not quite what I mean, but I can't think of another way to describe it) because when I trade my psychology at the moment has me p**sing about with trade for one reason or another and I end up exiting at a small profit or loss only to see price go in my direction for what could have been a great profit. This is very frustrating because I know the signal for getting in is usually good.

I think I need to try and get over the psychological issues before I can be a bit more flexible.

In my naked trading days (not trading naked days) I finally, after much study and experimentation and testing my personality, came up with the following method. I believe I learned it in one of Dr. Alexander Elder's books.

My money management methods determined how much I was willing to risk on any trade. That determined precisely where my stop loss went for the trade under consideration. If that seemed rational given other indicators, I entered the trade. I then used a trailing stop if the market moved in the direction that made the trade profitable.

Did I hit a stop loss just before the market took off in my direction? Sometimes.

Did my trailing stop get me out too early in a large move? Sometimes.

Did I make money without serious draw downs? Always.

Why did I abandon this technique if it was profitable? Boredom. Focus on cash flow.

Live long and prosper.

 

[jd1888]

Re: Beanz Meanz Pips !

Here is my take on things,

If you understand why you are entering a trade, you'll know when to exit it. (leaving aside any individual neurotic human behaviour, technological interferences )

This pondering seems to crop up all the time and to help a trader get to a point from which to progress I would ask them this,

Do you believe the markets are random or not , or are you not really bothered in knowing that ?

I say this because once a person is aware of his natural internal driver in pursuit of knowledge of his/her subject in focus, then it may help in them being suited to developing a particular fundamental strategy with fits their personality looking outwards at the subject matter.

I also think if a person is not aware of this, then I wouldn't be surprised to see erratic emotional driven decisions surfacing, as the internals actions of an individual have no solid belief foundation on how to manage the external fluid actions that the market will continually throw your way.

So personally I would want to get this awareness set at the earliest opportunity within the individual. And yes, it may often be that the trader says, "Hey , I just don't know the answer to that yet." And at that point, I would advise that they need to find it (the answer) before they can expect to make solid progress based on understanding that their internals now are ( at least )aware and are therefore more comfortable and expectant, of how to manage the external market incoming.


I'll call it the "Matching Principle" .

I mean its all about how you cook your beans. Some people will use a microwave, slam them in nuke the hell out of them, hot over cooked beans here stirred in with luke warm beans there, hey that's cooked beans right ?

Well for them yes, maybe their internals are happy with that,maybe they are not aware of any other way, but I couldn't cook my beans that way, nor do I , as I understand it impairs the beans performance, so my internals drive me to cook the beans in suitable sized pan over a steady controllable flame, gradually heating the beans evenly .

That's how I must cook my beans , understanding the ingredients and the energy forces applied to them, and how the beans are likely to react in that environment !

If you want to understand the market and trading, first understand beans and baking them.


Just my beans into the pot.

Nice post.

The beans part f**kin hilarious. I also cook my beans in a pan but thats because I have no microwave, having said that though I belive a pan is better anyway for the reasons you've stated. LOL

On a serious note though I think you've hit the nail on the head it is more of an internal problem than signal for exit etc.

I'll try to answer the question random or not?

I think they have to be random in some sense, the fact that there is so many traders/institutions trading them they all can't be communicating with one another to say buy here sell here.

But on the other hand certain markets can be moved and manipulated by the big players which would make that market not quite so random.

So I guess my answer to the question shows why I p*ss about with my trade so much, INDECISION. Would you agree Spinola?

 

[jd1888]

In my naked trading days (not trading naked days) I finally, after much study and experimentation and testing my personality, came up with the following method. I believe I learned it in one of Dr. Alexander Elder's books.

My money management methods determined how much I was willing to risk on any trade. That determined precisely where my stop loss went for the trade under consideration. If that seemed rational given other indicators, I entered the trade. I then used a trailing stop if the market moved in the direction that made the trade profitable.

Did I hit a stop loss just before the market took off in my direction? Sometimes.

Did my trailing stop get me out too early in a large move? Sometimes.

Did I make money without serious draw downs? Always.

Why did I abandon this technique if it was profitable? Boredom. Focus on cash flow.

Live long and prosper.

I have read one of his books can't remember which one it was though.

I suppose the worrying about what could have been isn't important in the grand scheme of things it's net profit over the long term that is. LIVE LONG AND PROSPER is the simply moto of that I guess.

 

[HowardCohodas]

I suppose the worrying about what could have been isn't important in the grand scheme of things it's net profit over the long term that is. LIVE LONG AND PROSPER is the simply moto of that I guess.

I detect ambivalence and frustration. You have to decide which of the three kinds of people you want to be.

1. Those that make things happen.
2. Those that watch things happen.
3. Those that wonder what happened.

I have my favorite motto pasted to the bezel of my monitor so that I can see it and be motivated by it constantly.

"If it is to be, it is up to me"

 

[jd1888]

I detect ambivalence and frustration.

Totally spot on Howard, thats exactly how I feel.

I know which one I want to be thats for sure. THE ONE THAT MAKES THINGS HAPPEN.

Its the getting that mindset and kepping it there where the problem lays.

That's a good motto to go with. I shall try and think about that and say it to myself at least once a day.

Its funny how we've sort of drifted of topic to the psychology of things but that just shows how the two are interlinked.

I think a lot about the psychological side of things and always try to keep a positive mindset because I have a theory that to attract what you want you have to be positive, but this can be hard sometimes when you staring at an open position going for/against you.

Because if you have a negative mindset then all get is s*it and bad results, which I'm sure a lot of people have experienced or can agree with.

Thanks to everyone how has contributed to the thread so far.

 

[HowardCohodas]

I detect ambivalence and frustration.

Totally spot on Howard, thats exactly how I feel.

It was relatively easy to detect as I've been there myself. I'm severely bi-polar. The ups were spectacular and the downs sucked. When I was down I would give up much of my hard earned gains. I never became a really successful trader until I got the right help.

"Better living through Chemistry" Those old enough will remember this tag line from a television commercial long ago and will laugh. The rest of you will just understand.

 

[spinola]

Re: Beanz Meanz Pips !

Nice post.

The beans part f**kin hilarious. I also cook my beans in a pan but thats because I have no microwave, having said that though I belive a pan is better anyway for the reasons you've stated. LOL

On a serious note though I think you've hit the nail on the head it is more of an internal problem than signal for exit etc.

I'll try to answer the question random or not?

I think they have to be random in some sense, the fact that there is so many traders/institutions trading them they all can't be communicating with one another to say buy here sell here.

But on the other hand certain markets can be moved and manipulated by the big players which would make that market not quite so random.

So I guess my answer to the question shows why I p*ss about with my trade so much, INDECISION. Would you agree Spinola?

Cheers and yes I can see how confusion, indecision , unpredictable own actions may whack in if we lack a sure footing on how we wish to approach trading the market in the first place.

And if all our market exposure experience is formative of how we perceive them to be , then It is clear to me that left unguided, it is no wonder it can often take many months/years of time exposure to the market environment for an individual isolated trader to understand and develop his fixed internal outlooks confronting a fluid market.

So what I think should happen, is that a trader needs to know his self inside, as to how he must approach the market conditions outside of himself.

And this brings my thinking back to the question of

Do I need (for myself) to approach the markets based on my internal driver that I feel, know, am drawn to... etc that

a) The markets are random or

b) The markets are not random.


And this is just my own thoughts on it, but with myself I have always felt option b) . For someone else, to them, it could be option a. But I would want them to know whats right for themselves , that is where I would nudge someone to head towards, answering that one bloody question firstly.

As from that , I feel, it may help the individual with the development of the entries and exits executed in the market and those actions taken are more likely to be planned, controlled and understood by the individual making them.