Exiting a trade

Traderji

Super Moderator
#1
Exiting a trade

How not to loose too much of your trading capital.

Upon entering the trade, if you place a sell stop below the market if you're long (buy stop if you're short), you know right away how much money you will lose in any given trade. You should never trade without employing stops. Thus, you should never be in a trade and have a losing position and not know where your exit point is going to be.

How to lock in larger than normal PROFITS in a winning trade.

You should always stay with your profitable trades as long as possible because the trend is likely to continue and make your profits even larger.

This is easy to understand but not so easy to do when real money is involved. The difficulty is that although your profit may become much larger if you stay with a trade, it may also decrease and even disappear. Human nature is such that it values a sure profit much more highly than the probability of a much higher profit. Thus, traders are inclined to take their profits too soon which can be fatal to long-term success because big profits are necessary to overcome the inevitable collection of small losses.

There is a good way to let profits run while still guarding against the possibility that prices will turn around and take away much of your accumulated profits before the trend actually reverses. It is called a trailing stop. You include in your plan a method for moving an exit point along some distance behind your trade. As long as the trend keeps moving in your favor, you stay in the trade. If the market reverses direction by the amount of your trailing stop, you exit the trade at that point.

A trailing stop moves to lock in profits as the trade moves in the traders favour, it should never be moved backwards. There are many different ways to calculate a trailing stop:

Volatility - the stop is calculated as a percentage of the average true range of x periods.

Rupee Amount - A set amount determined before the trade is entered.

Channel breakout - exit a long position at the low of the last x bars.

Chart patterns - ie move the trailing stop behind each consolidation as it forms.
 

AMITBE

Well-Known Member
#2
Traderji said:
Exiting a trade

How not to loose too much of your trading capital.

Upon entering the trade, if you place a sell stop below the market if you're long (buy stop if you're short), you know right away how much money you will lose in any given trade. You should never trade without employing stops. Thus, you should never be in a trade and have a losing position and not know where your exit point is going to be.

How to lock in larger than normal PROFITS in a winning trade.

You should always stay with your profitable trades as long as possible because the trend is likely to continue and make your profits even larger.

This is easy to understand but not so easy to do when real money is involved. The difficulty is that although your profit may become much larger if you stay with a trade, it may also decrease and even disappear. Human nature is such that it values a sure profit much more highly than the probability of a much higher profit. Thus, traders are inclined to take their profits too soon which can be fatal to long-term success because big profits are necessary to overcome the inevitable collection of small losses.

There is a good way to let profits run while still guarding against the possibility that prices will turn around and take away much of your accumulated profits before the trend actually reverses. It is called a trailing stop. You include in your plan a method for moving an exit point along some distance behind your trade. As long as the trend keeps moving in your favor, you stay in the trade. If the market reverses direction by the amount of your trailing stop, you exit the trade at that point.

A trailing stop moves to lock in profits as the trade moves in the traders favour, it should never be moved backwards. There are many different ways to calculate a trailing stop:

Volatility - the stop is calculated as a percentage of the average true range of x periods.

Rupee Amount - A set amount determined before the trade is entered.

Channel breakout - exit a long position at the low of the last x bars.

Chart patterns - ie move the trailing stop behind each consolidation as it forms.
Very lucid and comprehensive, Traderji.
There is so much to learn from your forum.
Thank you again for another informative piece.
 
#3
Dearest Traderji---
Excellent post on Trailing Stop----But Plz---If u describe in a bit details ---the diff methods of deducing a traling S.L.----or some web--references of calculating trailing S.L. for those who do not have an online trailing S.L proving software---it would be a great help for everyone-----

This article ---I feel is a must read(repeated times) for everybody----even for day-traders like many of us---

Regards,
joy_mitali
 

hmp

Well-Known Member
#4
Dearest Traderji,
Thanks A Lot For Excellent Post As Always. I Certainly Agree With What Joy Says. Pl. Give Us Some Guidence About How To Put A Proper Stoploss. Esp. For Those Who Doesnt Have Any Technical Knowledge And For Traders Who Sits Before Brockers Terminal Full Day And Doesnt Have Any Tool With Them To Judge Where To Put And How Much To Move Stoploss With Their Running Position To Protect Their Profit.
Regards
Hmp.
 

karthikmarar

Well-Known Member
#6
Traderji said:
Exiting a trade

[ There are many different ways to calculate a trailing stop:

Volatility - the stop is calculated as a percentage of the average true range of x periods.

Rupee Amount - A set amount determined before the trade is entered.

Channel breakout - exit a long position at the low of the last x bars.

Chart patterns - ie move the trailing stop behind each consolidation as it forms.
Traderji

Such informative posts makes visting this forms daily fruitful. Can you please elaborate on the above. Thanks

karthik
 
#8
Hello Traderji,

This is the first time I am reading such article: "How to reduce the losses"!!
But, will it be possible to come out with one or two examples so that, I can understand it better?

Regards,
Narendra
 
#9
hello tradji,

thanks a lot for such a informative article.

hkvora
can you explain about FUTURE PRICE= SPOT PRICE +COST OF CARRY
DURING THE TRADING HOUR IF COST OF CARRY INCEASES OR DECREASES
OR FUTURE PRICE IS MUCH LESS THAN SPOT PRICE WHAT INFORMATION WE
SHOULD THINK OF .
 
#10
I am new to trading. So traderji correct me if I am wrong. Let me give you an example of short-term trading.

Trailing stop-loss may differ from person to person. Mostly it is based on how much of profits you want to lock-in. Suppose you bought a stock for Rs. 50 with a target of Rs. 75. If the market starts to fancy the stock, it goes beyond your original target of Rs. 75, you would be better of riding the momentum. So you employ a trailing stop-loss of say, 5% below Current Market Price. If the stock closes/trades below your stop-loss, you get out of the stock. Ideally, if you have a long-term perspective then it makes sense to keep your trailing stop-loss lower, say 8-10% so that short-term market fluctuations are evened out. It is upto you to determine what is your "uncomfortable" level - the price below which you start feeling jittery.
 

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