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Let's talk 'Exit Strategies'; your methods to help cure my madness
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Let's talk 'Exit Strategies'; your methods to help cure my madness

  #1 (permalink)
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Let's talk 'Exit Strategies'; your methods to help cure my madness

I have been struggling for months now with creating a successful exit strategy. Among the things I've tried are volume spikes, swing high/low, and reverse engineering the market (seems to have worked the best).

To be specific, what I mean by reverse engineering the market, is that I went back, took a snapshot of every indicator at big trend changing moments, and recorded their values. I then took an average of each indicator on the up and the down side, to see if I could find any that were real outliers and would definitely indicate trend change. It seems to be working thus far, but it's still in its infancy. It doesn't catch as many as I'd like, but will do for the time being.

So my question is, what exit strategies have those of you used? How successful have you been, what did you try before, and how maddening did you find it?


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  #2 (permalink)
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Hi Zach,

Can you tell us a bit about your trading style? Are you scalping? How many ticks on your winners?

I think there are two factors in exit strategies: statistical data based on factual evidence (not emotion) showing something like highly probable reversal areas or highly probable reversal @ MFE point etc. Second factor is indicator based, such as a Higher High or something crossing a zero line or etc etc.

For me I like to use a static first target on my first contract, and then a runner on the second contract. I try to use math and stats the best I can to get me the highest MFE possible on the second contract, because often if I have one winner early in the morning I can stop trading the rest of the day after just one trade.

I think most traders have the problem of cutting their winners short. It's a psychological problem that occurs over time after being beaten to death by the market, you are afraid to lose money and afraid to let a winner turn into a loser. As my friend Gary likes to say, fear is an excellent motivator and teacher.

A few videos ago I remember talking about how indicators can't tell you when to exit. I mean they can, but that rarely is the issue. The issue is you. And by you I mean the person clicking the button. In the video, I was showing how nothing on my chart told me to get out of a trade. Nothing, not a single thing. Yet I exited and left a few hundred bucks on the table. Why? Emotion. I don't remember the specific reason I exited (months ago) but I am sure it was because it was slowing down or was an indecision bar, etc.

Point is, if you decide to use an indicator-based exit strategy, you have to actually follow it and a lot of traders don't/won't/can't. That's where experience comes in...

Looking forward to a lot of discussion on this topic. After all, the only important part of the trade is where you exit!


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  #3 (permalink)
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I trade once a day, in the 30-year Treasury Bonds, I usually get about a full point. The one problem I don't have is not allowing the strategy to run. I'll let that thing run all day and won't interfere at all, I learned early it's a numbers game. I have a neural network that picks great entries, but I usually go to close. Some days I'll have a $1000 or more per contract and I'll end up down $1500 per contract. I'm still doing very well, but I'm working on getting out with an exit. Today, my indicator exit strategy, got me out two ticks below where I got in, but I was up a full point today. So cutting my winners short isn't a problem, it's just taking them it would seem.

It's at the same time reassuring and disconcerting that a lot of traders have this problem. Reassuring in that it's not just me, disconcerting in that I'd love an easy answer .

I do trade similar to you though, I do one trade a day. I follow the mantra that tomorrow's another day, another opportunity.

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  #4 (permalink)
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Great topic!

Great topic zwentz! I hardly even considered this question until I realized that managing my stops and my profit taking is nearly 90% of the game. Personally I like to use swing highs/lows as my stops and aim to snag a runner. I posted a great example in my journal today where I really f'ed things up but the idea was spot on.

Anyhow, I think the key is having a clear plan of how you want to take profits. Are you trying to scalp or are you trying to let your profit run. Once you've decided that figure out your exit rules and stick to em. I aim for a runner and use swing points for stops. I'm shooting for about 50 ticks so I'll seriously consider taking profits in that area if it makes it there but I'll also gauge price action on the way. I know it's a little subjective but I do not ever compromise on using those swing points for my stops and I always always always enter a trade with r/r ratio of at least 1/1.

Good trading.


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zwentz View Post
Some days I'll have a $1000 or more per contract and I'll end up down $1500 per contract.

Here's an interesting article I stumbled on the other night. He's talking about stocks, but I'm sure the concept could be applied to any instrument. Basically, it sounds like a 25% trailing stop. So, on those days your showing $1,000 profit, you'd have a trailing stop working and take no less than a $750 profit.

There's some other links in the article that go to some more interesting stuff, also.

Trailing Stop

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PT (Profit Target)

Have struggled with this one myself.

And only two ways make sense to me at the moment.

1. Take profit at a resistance line.
To do this you must know how to draw S/R lines and not many can in my experience, because it is so much harder than it looks at first glance.
And no , in not gonna teach you to , but i strongly recommend you put a lot of energy into this.

MASTER THE BASICS..! The basic stuff is the magic you guys are trying to find in your stupid indicators.

2. Take profit at signs of weakness; if you think the price might go the other way.

The maximum PT should be something like the total daily range , and this depends on what instrument your trading and where in the daily range you get in.


Focus not on the winnings put on keeping the losses as small as possible.
Keeping the losses small is what will keep you in the game.

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  #7 (permalink)
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Great Topic Zach!!

IMO, your trade management has to be aligned to what the market is doing. ie. channel trade when the market is choppy, let the trade run when the markets trending.

I used to have 2 problems with exit strategies:

I used to hate trading the choppy markets, mainly because I was always hanging for the "BIG ONE" and the fear of missing the start of the run, would often turn profitable trades (15-20pips) into breakeven trades. ...result: all the effort and no reward.

Close a profitable trade early (usually with a static profit target) and watch the market continue on, leaving me with a profitable trade but a slight eye twitch knowing (in hind sight) that I has missed a significant part of the movement.

And to add insult, I'd stupidly chase the market....

I use a feedback loop system (very similar to NN methodology), so IMHO its a matter of adjusting your NN exit strategy according to market activity, once your NN recognises how the market is reacting, it can manage your exit (and trailing stops) according to your trade plan/rules.

Good luck!

will take whatever the market gives.......gratefully
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  #8 (permalink)
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I've had good luck simply using the opposite of my entry signal as my exit. In other words if the market is telling me that I should be shorting then I exit the long trade. I may or may not actually go short but it's definitely time to get out of the long. This may or may not work with your trading strategy, but perhaps modify your neural network to recognize the opposite of your entry signal and use that as an exit?

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It really depends on the number of contracts you trade. For example, if you trade 4 contracts on might take 3 of them off at +4. That puts you +12 for the trade, which allows you to put the last contract at -12 and still be in a free trade. As you watch the rest of the trade unfold you may then manage it as you please. The whole point is to calculate the point at which you are in a free trade regardless of how many contracts you trade. But you must trade more than 1 for it to work.

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I use a fairly simple system. I go back to my profitable trades and calculate from my entry (real entry, not theory entries) to the max profit minus a couple of ticks. From there I take an average and use that as my target. I also do that for my stop loss to see how far my trades can potentially go against me. I roll it from month to month so the data is fairly current to the most recent market activity.

You can use this system for different pattern setups so a pullback may have a different target/stop loss vs range breakout.

Last note, I am usually all in and all out, without scaling of any sort. I find scaling screws up the R/R and some good info on that is Tharp's book.

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