In part one of this article, we considered a few questions: Should we use a tight stop loss to cut any losses quickly, or a wide stop loss to allow some room to move? |
How quickly should we move the stop loss to breakeven?
Should we take profits at a target, or should we let the profits run, perhaps trailing a stop behind the price?
In attempting to answer these questions we looked at a number of charts, we chose entry criteria, and then looked at possible options for the exit. And this is what we discovered: Firstly, in each case, the profit or loss taken out of the intraday trading was more a result of our chosen stop and exit method, not our entry. For the same entry, there were numerous possible exits, some profitable, some breakeven and some at a loss. And secondly, we cannot know, except with hindsight, what will be the most profitable exit strategy for that particular trade.
In other words - the exit is more important than the entry. The exit has more bearing on whether the trade ends in profit, or in loss. But there can be no perfect exit strategy that best manages every trade. Sometimes we are better off with a wide stop. Sometimes we are better off with a tight stop. And for ongoing management of the trade, sometimes in hindsight the best results would have come from exiting a target price. Other times the best results come from trailing a stop. So what is a trader to do? In this part of the article, I would like to discuss the some of the principles, intraday tips or personal beliefs that I used in formulating an exit plan. Coming up then in part three, well examine my exit strategy, and share some advice from great authors and traders who have shaped my current beliefs regarding exits.
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