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How To Exit Winning Trades Part 2

By  +Follow June 19, 2013 9:00AM
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In the first article of this series, we identified the correct exit in the market at near the exact top (within 1 day of the multi-year high), designed to identify timing for exiting open long swing trades using the S&P chart. We also discussed the importance of scaling out of open winning trades in two steps, to close initial entries out over time, at key sequential support levels. In this second article, we’ll look at closer technical exit signals for swing trades, with unique examples.

Scaling Out Of Downtrending Swing Trades: A Tighter 2-Step Exit Plan

In the first article, we looked at both 4- and 8-day support levels as exit signals. To extend that trading strategy, we now look at the special case where a swing trade is starting to exhibit signs of a downtrend, as defined by lower price action compared to a prior day. The goal is to start tightening in trailing stops to lock in gains at the first sign of a trend reversal.

In Figure 1 Calpine Corp. (CPN), we see that a downtrend has started to form midday (lower lows, lower highs for the current plus prior day’s price action trend). To exit, we scale out of half the trade if price action gets .35 cents under the cumulative 2-day low (current plus one prior day). For this CPN chart, that would be at (21.5 - .35) = 21.15 as the first scale-out exit. The secondary entry is to be set at a maximum of 1 full point under the cumulative 2-day low, in this case (21.5 – 1.0) = 20.5 for the second, final exit.

Figure1 CPN

 

Traders often needlessly wait for extremely large drops before scaling out of open winning swing trades, with exits far too low, to lock in significant potential profits. It’s a smart idea to test out various exit signals like those discussed, to start scaling out of open winning swing trades at the first sign of trouble, as illustrated in this chart, with a .35 below 2-day low exit to start exiting the position.

A good breakout trader always thinks to themselves “I can start closing out a winning trade here since it’s dropping, however I can always re-enter at new highs later, if it takes them out”. This thinking can help traders gain a more focused edge in their trading, without sacrificing open unrealized profits in their positions as the primary objective.

Swingtrading Exits: Head and Shoulders Breakdown Exits

It’s wise to become familiar with all bearish reversal patterns, such as head an shoulder patterns, and use these to help develop a 2-step scaling out of open winning swing trading plan as well. In Figure 2 Zale Corp. (ZLC) there’s an obvious head-and-shoulders pattern occurring on June 17th and 18th, 2013 on this 15-day candlestick chart. While not a sign to exit immediately, a protective stop can be placed at (9.2 - .35) = 8.85 on an open swing trade, in case it does attract sellers, and the price action drops.

Figure2 ZLC

 

Similarly, a 1 point trailing stop under the 2 day low yields a final exit signal at (9.2 – 1) = 8.2 for any remaining open long shares in a swing trade. This 2-step process (.35 under 2-day low for exiting half a swing trade, and 1.0 point under 2-day low for exiting the remaining half of a swing trade) is used whenever there’s a bearish signal, like a downtrend or head-and-shoulders pattern.

Similar exits can be used with candlestick chart patterns such as shooting stars and bearish engulfing patterns at the first sign of weakness in the underlying price action of what’s being traded. We’ll look at candlestick chart patterns with 2-exit trading strategies in a subsequent article.

Recognizing the Difference Between Trend Reversals vs Minor Pullbacks

A favorite saying of experienced professional traders is “when in doubt, get out”. When it comes to trying to decide about exits, and whether or not a trend has reversed or is simply chopping around in a minor pullback, it’s important to decide to exit sooner rather than later. Solid uptrends are generally strong from the start and continue for a healthy distance. Anything less than the best strong trending charts is likely to cause trouble and not be worth trading.

Using this 2-day “in vs out” process helps give traders a key decision-making process to use as part of their overall trade management plan. Buying new 2-day highs, and selling 2-day lows (meaning today plus one prior day, not two days prior to today), is a core professional trading strategy worth testing out.


Ken Calhoun is a trading professional who has traded millions of dollars of equities since the 1990s, and is the producer of multiple award-winning trading courses and video-based training systems for active traders. He is a UCLA alumnus and is the founder of TradeMastery.com and DaytradingUniversity.com, popular online educational sites that reach tens of thousands of active traders worldwide. ###

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer


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Results for CPN
Market Int Center
17 Apr 15 10:24:08
Calpine $CPN Trading Near $22.56 Support Level ( http://t.co/fWZz7rsOAv )
Bluegrass Capital
17 Apr 15 10:11:37
Power generator $CPN's relative immunity to input cost (natgas) fluctuations a sustainable differentaiator vs peers? http://t.co/wwJUkvdKrR
Young Value Trust
17 Apr 15 04:13:02
RT @BluegrassCap: Power gen co $CPN has reduced share count 25% since 2011, trading @ 10x FCF, run by mgmt who previously built via M&A the…
AdamB1438
17 Apr 15 03:21:02
@BluegrassCap Really interesting idea!! Thanks. Also, imagine the exposures in a portfolio that was long both $CPN and say... $CHK :)
Gerardo Benitez
16 Apr 15 19:39:29
RT @BluegrassCap: Power gen co $CPN has reduced share count 25% since 2011, trading @ 10x FCF, run by mgmt who previously built via M&A the…
Bluegrass Capital
16 Apr 15 19:21:22
Power gen co $CPN has reduced share count 25% since 2011, trading @ 10x FCF, run by mgmt who previously built via M&A then sold at 5x return
ProVesting
16 Apr 15 06:52:44
$CPN: Valeant Pharmaceuticals (VRX), CBS Corporation (CBS) and Sirius ...: http://t.co/mNBovJWyDk
TheExtraIncome
16 Apr 15 01:21:38
Guru Robert Bruce's Stocks Trading at Low P/E $SD, $CPN, $AVA, $CJES, $XOM, $ALL http://t.co/XsM9w8Akio
BNK Invest
15 Apr 15 13:41:04
Calpine Moves Up In Market Cap Rank, Passing Mattel $CPN $MAT #stocks http://t.co/yKXrmw16zC
Breaking News Now
15 Apr 15 12:00:24
$CPN: Calpine Price Target Raised to $23.00 (CPN): http://t.co/A7iDdfPso6
The Legacy News
15 Apr 15 10:57:37
Calpine Price Target Raised to $23.00 $CPN http://t.co/sHEVoZkOS5
StockNewsWires
15 Apr 15 02:05:20
$CPN: Zacks Short Term Rating on Calpine Corp (NYSE:CPN): http://t.co/TmbCz00tWV
Penny Stock Secret
14 Apr 15 18:34:50
Yesterday We Made $89,000 In Just One Trade More Info Here http://t.co/NovWYe2RAx .. $CPK $CPL $CPN https://t.co/nmKs04aw8f
ProVesting
14 Apr 15 09:00:41
$CPN: New SEC Filing for CPN: Form ARS (No. 9999999997-15-007917): http://t.co/nfpKzdtnim
New SEC Filings
14 Apr 15 09:00:22
NEW SEC Filing for $CPN filed a moment ago: http://t.co/6lawNN328Y http://t.co/FOh74q9F8P
WKRB News
14 Apr 15 05:28:04
SunTrust Increases Calpine Price Target to $23.00 $CPN http://t.co/lPdplURPeb
Sleek Money
13 Apr 15 16:35:47
Calpine Price Target Raised to $23.00 at SunTrust $CPN http://t.co/MTJKx5uHaC
ProVesting
13 Apr 15 16:31:02
$CPN: Calpine Price Target Raised to $23.00 at SunTrust (CPN): http://t.co/p9L1gCKYZx
US Banking News
13 Apr 15 16:12:37
Calpine Given New $23.00 Price Target at SunTrust $CPN http://t.co/nqLVTEWiIn
Ticker Report
13 Apr 15 13:56:14
SunTrust Increases Calpine Price Target to $23.00 $CPN http://t.co/MexfFYnBGU
StockNewsWires
13 Apr 15 13:55:35
$CPN: SunTrust Increases Calpine Price Target to $23.00 (CPN): http://t.co/NFUjS7HdLa
Market Int Center
13 Apr 15 05:39:41
Calpine $CPN Trading Near $23.19 Resistance Level ( http://t.co/GyADHYGmvz )
ProTradersNews
12 Apr 15 20:55:09
$CPN: Company Shares of Calpine Corporation Rally 0.66%: http://t.co/LI409EDjmE
dailystockplays.com
12 Apr 15 12:46:00
Ichimoku Red http://t.co/9tZknLa6hO $BBD $CSX $BTU $RDC $ECA $NHYDY $SLW $CNX $GGB $SYRG $CMS $CPN $SSRI $ASHR $TNK $BRFS $TRMB $LNCO
StockEarnings.com
12 Apr 15 10:35:20
$CPN ER on 5/1 Before Open. SP were UP 13 times out of last 21 qtrs (61%) in Earnings reactions http://t.co/glKoS827Am
PHP Retweet Bot
12 Apr 15 06:16:06
RT @CryptocoinAPI: Accept #CompuCoin #CPN payments in #PHP #Wordpress #Woocommerce. #Bitcoin $CPN Goto - https://t.co/Fhfc6XBV75 http://t.c…
GoUrl Cryptocoin API
12 Apr 15 05:50:02
Accept #CompuCoin #CPN payments in #PHP #Wordpress #Woocommerce. #Bitcoin $CPN Goto - https://t.co/Fhfc6XBV75 http://t.co/2iGuzf2Ada
InvestProfits
11 Apr 15 12:06:36
Calpine Corporation (CPN) Up 5% from its 50 Day Moving Average http://t.co/GIAuq4NDIK $CPN #investor #stocks #investing
Dave Mecklenburg
10 Apr 15 14:29:54
Breakout watch for MON $AFL $AMTD $BK $BXS $CAG $CCL $CLGX $CPN $CVG $FDO $GNTX $KAR $KND $NWL $SBGI $SPR $TMK $TRI $WCN $WU
NASDAQ
10 Apr 15 13:10:17
$CPN - Amended Statement of Beneficial Ownership (sc 13d/a) http://t.co/PHDUDoCJ0U
SEC Filings
10 Apr 15 13:09:35
NEW SEC Filing for $CPN filed a moment ago: http://t.co/4bq6iPm3Yg http://t.co/0Iae0PItA1
whalewisdom
10 Apr 15 13:07:44
New SC 13D/A from LUMINUS MANAGEMENT LLC concerning $CPN. See details at http://t.co/gYAbYIXCPy
13D Alerts
10 Apr 15 13:06:08
$CPN Ammended 13D filed by: Luminus Management Llc, subject: Calpine Corp, Percent: 6.6% http://t.co/Q38L04l7Rk
$Stocknewsalerts
10 Apr 15 13:05:52
$CPN Calpine Form SC 13D/A (Amended Statement of Beneficial Ownership) SEC Filing From our Stock News Alerts App
InsiderTradingWire
10 Apr 15 13:05:08
13D Alert for CALPINE CORP - $CPN - #13D #insidertrading - http://t.co/luUVk98FjA
StockNewsWires
10 Apr 15 08:44:31
$CPN: Brokerage Firm Price Target on Calpine Corporation: http://t.co/OPe1rxyO0Q
BreakingStocksNews
10 Apr 15 08:44:23
$CPN: Brokerage Firm Price Target on Calpine Corporation: http://t.co/szTmAzgaQb
InvestWithConf
10 Apr 15 06:15:03
$CPN $ES: Utilities Sector Movers and Shakers -- Exelon, AES Corp., NRG ...... http://t.co/rxN7hqhgAi http://t.co/QidDAjE5hG
dailystockplays.com
9 Apr 15 19:34:04
Stochastic Sell Signal http://t.co/f3b73Dl2RG $TWTR $DNR $BBBY $VMBS $GPT $LYB $ADM $TWO $QEP $NVO $CPN $ASHR $EWW $CMCM $OMC $ACN $SPN
				
				
By  +Follow June 19, 2013 9:00AM
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