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In today’s episode, you’ll discover 5 things to look for before you exit a trade.
So tune in right now…
Swing Trading Strategies That Work
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The Complete Guide to Stop Loss Order
Price Action Trading: 6 Things To Look For Before You Place A Trade
Hey, hey, what’s up my friend? In today’s episode, I want to share with you five things to look for before you exit a trade.
1. Ask yourself what the goal of this trade is
This depends on the type of trader you are. You could be looking to capture a swing in the market, or you could be a trend follower looking to ride a trend in the market.
Before you exit your winning trade, you must determine what type of trade this will be. Is this trade about capturing one swing in the market? Or is this going to be a trade to ride the trends and you’re willing to accept the drawdown and the pullback that comes along the way.
2. If you’re looking to capture a swing in the market, then pay attention to swing highs and lows, support and resistance
Let’s say you are a swing trader looking to capture a swing and you happen to buy at support and the market is moving in your direction, at what point do you exit your trade? How should you exit your trade such that you can capture a swing in the market?
My guideline is if you’re a swing trader looking to exit your trade, then you want to place your exit at a level before opposing pressure sets in.
If for example, you buy at support and the market is moving in your favour, you want to ask yourself could opposing pressure come in. In other words, where might selling pressure come in? Where might sellers step into the market and push the price down lower?
A few common levels to pay attention to is the swing high and the area of resistance. I would say that these two are pretty much the most common ones. As a swing trader, pay attention to support resistance and swing highs and lows, because these are where opposing pressure is likely to step in.
3. If you’re a trend follower, then use a trailing stop loss to ride a trend
When you want to ride a trend, you must be comfortable watching your winners become losers. That’s just the nature of trend following. It’s impossible to ride a trend without enduring the drawdown and pullback.
Those are guaranteed to occur in every trending market. Thus, you want to adopt a trailing stop loss. What this means is that if the market moves in your favour, then you want to progressively shift your stop loss higher.
This gives your trade the room to go up and down without stopping you out of your trade too early. There are numerous trailing stop loss techniques that you can use.
Some of the more popular ones are for example if you are a discretionary trader you can use the price structure of the market to trail your stop loss.
For example, if you buy a breakout and the market moves in your favour, what you can do is to trail your stop loss based on the previous swing low as the market continues to make a series of higher highs and higher lows.
You will continue holding that trade but when it breaks the previous swing low that’s when your uptrend gets ‘destroyed’ and that’s when you can exit your trade. And hopefully, the trend is moving in your favour enough for you to capture the meat of the move.
that’s using a trailing stop loss. At the same time, you can also use things like moving average or Chandelier Kroll Stop and stuff like that.
4. Beware of exiting your trades based on emotions
This is usually when you’re exiting your trades at the worst possible time, especially when you can no longer take the pain anymore. Let’s be honest, whenever you exit most of your losing trades, it’s usually because you can’t take the pain any longer.
The market moved against so much that you don’t want to endure the pain anymore. You want to call it quits and bail out of the trades. And often, what happens is that you pretty much sell near the lows right before the market rebounds higher.
Beware of exiting your trades based on emotions because when the market moves in your favour, you are usually pretty confident, and you don’t feel the need to exit your trade.
The emotions that cause you to want to exit your trade is usually when the market moves against you. A simple fix is to determine ahead of time where your stop loss level is if the market moves against you.
Because once you have defined that level ahead of time, then your risk management and position sizing are all based on that level. If the market moves against you, you are already prepared for it.
This way, you will not be exiting your trades based on emotions, which is usually at the worst possible time. Plan this ahead of time, even before you put on a trade.
5. Ask yourself if this exit is according to your trading plan
There’s no point exiting your trades based on certain technical or market guidelines that you follow if that’s not part of your trading plan. If it’s not, then it doesn’t matter because your trading plan is what matters.
Your trading plan is what guides you to have a consistent set of actions. Because without a consistent set of actions, you will not get a consistent set of results. Your trading plan is what gives you consistency, but only if you follow it.
This is why you must develop your trading plan and have the discipline to see through it no matter how difficult things are. Because if you can follow your trading plan on every trade regardless of the outcome, you have what it takes to become a winning trader.
Someone who can follow their plan with a consistent set of actions will eventually achieve a consistent set of results.
Just a quick recap before we end…
- Ask yourself if this is a trend following or a swing trade
- If you’re a swing trader, look to exit your trade before opposing pressure sets – using levels like support resistance, swing highs & lows, etc.
- If you’re a trend follower, trail your stop loss using price structure, moving average, etc.
- Don’t exit your trade based on emotions because this is usually at the worst possible time when the market is at its maximum pessimism or maximum optimism
- Have a trading plan and follow it closely – you want to dictate your exits based on your trading plan and nothing else, not the news, not your opinions, nor the noise of the market
With that said, I wish you good luck and good trading. I will talk to you soon.