Exiting the swing portion of your trade

August 20th, 2017, 12:49 PM

I've recently begun adding a swing portion to some of my early morning trades. The concept is the same that Brooks outlines in Reading Price Charts Bar By Bar. Buy two contracts, scalp one for a point and then move the stop to breakeven. I'm curious what folks on here use as an exit strategy for their scalp portion? Brooks doesn't really cover it in detail as far as I recall.

I see a few options:
1) Clear and obvious change in trend
2) Profit target
3) Tighter trailing stops

The approach I had been using is illustrated below by two trades this week.

I've basically waited for a second leg and then used a very tight trailing stop to exit on a pullback. You can also see in those pictures that I left a lot of money on the table. There is a psychological issue at play here where when the trade really starts working in my favor I don't want to watch it evaporate on a massive pullback. That seems to prevent me from fully executing on #1. I don't feel like profit target (#2) is necessarily correct in all situations, unless there is a very strong S/R level on the path. So, I basically end up doing a variant of #3 which seems to be at least partially counter the concept of "swing". A fourth strategy could be to add a third contract, exit one with a scalp, use my tight trailing stop for the second, and then just let the third one go. That would only fit within my risk profile in situations where I can use a very tight stop - but may be more appropriate for the stock trades.

Love to hear your thoughts...

October 11th, 2017, 04:53 AM

Hi teajay ,

By definition, a trend is a trend as long as it makes higher highs and lows. So only after a new high is established, I think you should trail your stop to a major higher low.

If your eager to take profits too early, your focusing to much on risk maybe. Take a very small position and leave it running. Find a measured move based on the spike, the height of a trading range or else.
When the trend makes a new high, look to see how big the pullback is and trust that your price will come back to the top (forming a double top). If the pullback was bigger than you liked, exit at the close of the previous high.

I think in your case, for the first chart, it's going down all the way, why would you want to exit early. There hasn't been a trend line break, we're making lower lows and lower highs and each new low has follow through bars.

In the second example your provide, after a huge buy climax, it's going sideways, you're probably going to get a little bigger pullback that allows you to get in again at a better price - i would exit when the bars are going to go sideways and hopefully at the closing price of that final bull bar in the spike. You can see how a lot of traders did so in the bar after the bear bar.

So in general, let a trend be a trend. Take some partial profits maybe 2x risk or at obvious resistance levels.

Hope this helps,
Cheers

Exiting the swing portion of your trade

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Exiting the swing portion of your trade