If you are struggling with exits relook at your setup | stockbee

4/12/2018

If you are struggling with exits relook at your setup

The number one question I get on emails is about exits. Lot of beginner traders struggle with exits.

If you do not have a exit strategy it means you do not have a valid setup idea. Looking at exit strategy in isolation of setup is of no use. Each setup idea has specific exit strategy that works with it.

You often hear that exit is more important than anything. The person who wrote that is a book writer and not a trader. All elements of a trading setups are equally important. Often a sloppy setup idea is reason you are struggling with exit.

How many professional traders who trade for living and make money consistently you know who will say exit is most important. I have been in this business for 18 years and have made lot of money and talked to hundreds of successful traders. None believes that exit is more important than other elements of trading setup.

Exit is one of the element of a full setup. a setup consists of many elements and all those elements work together to create a full setup. All elements of setup are equally important. Setup has entry criteria. Setup has equity selection criteria which will define what kind of stocks to be traded using that setup. A setup has stop strategy built in to it. A setup has risk strategy built in to it, which determines how much to risk per trade. 

A setup is a complete package and it works if all elements work. A setup does not exist if you do not have an exit strategy.

A scalper by very definition of setup has exit strategy. He is just looking for small profit and scalpers sell as soon as their small profit goal is achieved and exit quickly if trade does not work.

A swing trader by very definition of setup has exit strategy. (entry at beginning of swing and exit at end of swing). Average duration of swings is days to weeks  and have magnitudes of 8% to 40% so swing traders plan their exit accordingly and what works for this setup is not going to work for other setups.

A day trend follower by very definition of his setup has exit strategy ( entry on trend change , exit on trend change). If your trend following strategy is based on defining trend as say entry once it crosses 50 MA, your exit will also be defined by some M A crossing. In tactics terms often that MA uses smaller time frame of say 20MA or 10MA as trend works in your favor. Now this kind of trailing exit is specific to trend following , you can not just hope to apply it to swing trading blindly.

A value investor has specific setup where he buys on undervaluation and exits on parity valuation to his model or on overvaluation.

If you don't have exit strategy, you don't have a valid setup. There are no universal exit strategies. Every exit strategy or tactics is context specific.

If you study professional traders who do  swing trading for living you will find majority of hem exit in to strength no matter their time frame of trading. While amateurs and struggling traders exit on weakness after allowing their profit to vanish.

Exit in to strength is the best exit strategy on the street for hundreds of years if you are swing trader. I use that for all my swing trades like 4% breakout, $ breakouts, anticipation setups and low threshold breakouts.

Professional traders exit in to strength while amateurs exit in to weakness. Professional understand the structure of market and are not bothered by leaving money on table when they exit in to strength. They do not regret selling early.

Amateurs are fascinated by trying to exit in to weakness or on pullbacks or on trailing stops for swing trading and it leads to frustration.

If you are struggling with exits relook at your setup.....

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