I think most traders will agree that in a lot of cases the exit is more important that the entry. Beginner traders spend most of their time trying to perfect their entry but ignore the fact that just as much (if not more) effort should be put into perfecting the exit.
A few things I presonally think should be taken into account with exits are:
- Where is the initial profit target? What is that target based on (static / indicator / volatility / price action)
- Exit the entire position or scale out? Do you want to forego taking 50% of your profit now in the hopes that the trade will continue in your direction. But you may conversely make less as a result of not exiting the whole position at the initial target.
- Where is your initial stoploss? What is it based on? Do you use the same criteria as your profit target?
- Do you scale out of a losing position or exit the entire position?
- Do you use the 2% rule and work your way back according to money management. Or are there additional considerations (eg: 2% rule but taking into account support/resistance/price action?)
- Do you move your stop to breakeven? And if so, when and why? The answer might not only be to remove risk, there may be a trigger for when the right time to tighten the stop is.
- Presumably, each strategy would have a different way of calculating the above mentioned criteria.
Something I want to look into when I get a chance is possibly setting an initial profit target based on a higher time frame percentage of ATR. However when in the trade additional criteria would be taken into account to possibly tighten the stop (eg: if the ATR on current time frame starts dropping? or if price enters a squeeze)
What criteria do you use for your exits? There are probably as many reasons to exit a trade as there are to enter one. I thought it may be worthwhile to discuss some ideas or methodologies around exits.
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