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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
Briefing.com
28 May 15 11:32:59
$CPN: Calpine has closed on a $1.6 bln first lien term loan http://t.co/GoSNiEPjoG
$Stocknewsalerts
28 May 15 09:59:10
$CPN Calpine Closes $1.6 Billion First Lien Term Loan From our Stock News Alerts App
BreakingStocksNews
28 May 15 09:38:05
$CPN: Calpine Closes $1.6 Billion First Lien Term Loan: http://t.co/dVrJqISCNi
InvestWithConf
28 May 15 06:11:03
$CPN is rated BUY, 23.9% upside by Wall Street analysts based on average ratings/targets http://t.co/prs2eHPqlP http://t.co/A2o8D2zNVy
StockNewsWires
28 May 15 03:34:04
$CPN: Calpine Corporation Price Target Update: http://t.co/Pied9AMzlo
Breaking News
26 May 15 11:18:04
$CPN: Calpine Corporation Analyst Rating Update: http://t.co/4xcTMrJkuG
wsnewspublishers
26 May 15 09:22:38
Downtrend of Stocks: http://t.co/vIneeY8XLL $SSE $USG $PWE $CPN
Capital Market Labs
25 May 15 18:08:12
Large Utilities Revenue per Employee $DYN $PNW $CPN $GAS $STR Chart: http://t.co/TcRp8jKx0u http://t.co/sF1cnggxPF
Capital Market Labs
25 May 15 15:37:29
$CPN EPS is Increasing. #CML_CPN #CML_EPS http://t.co/m2J8J7Viei http://t.co/OjAi1abXiu
Capital Market Labs
25 May 15 14:43:01
Large Utilities Cash from Operations $DYN $PNW $CPN $STR $GAS Chart: http://t.co/FMnvfg6mt2 http://t.co/WHlczN5INo
Capital Market Labs
25 May 15 14:37:42
Large Utilities Highest Risk per Option Market $DYN $CPN $GAS $STR Chart: http://t.co/MJPALpSAI0 http://t.co/tfi94Ruxv1
Capital Market Labs
25 May 15 12:01:46
Large Utilities Assets $DYN $CPN $STR $GAS Chart: http://t.co/MYQ0QJZvQB http://t.co/LJuT7k2AXk
Capital Market Labs
25 May 15 10:16:15
Large Utilities Assets vs. Earnings $CPN $GAS $GXP Chart: http://t.co/XesbwlmmJt http://t.co/VPRiF8FdPS
Capital Market Labs
25 May 15 09:58:39
Large Utilities Earnings $DYN $CPN $STR $GAS Chart: http://t.co/pjvgAnFrCA http://t.co/wKYPd5cyF8
Capital Market Labs
25 May 15 07:56:40
Large Utilities Operating Margin $DYN $ITC $CPN $GAS $STR Chart: http://t.co/Fmj7Qcge7y http://t.co/Iwe5QLOKVH
Capital Market Labs
25 May 15 04:43:31
Large Utilities Cash from Operations vs. Valuation $PNW $ITC $CPN $GAS $GXP Chart: http://t.co/i7QTpDA2oQ http://t.co/7AcpxqDVrM
Capital Market Labs
25 May 15 01:31:55
Large Utilities Stock Buy-backs $WTR $CPN $STR $HE Chart: http://t.co/XAENE3HgEQ http://t.co/shfgYrrN7M
Capital Market Labs
25 May 15 00:49:54
Large Utilities Earnings vs. Revenue per Employee $CPN $PNW $GAS $TE Chart: http://t.co/WeZroekb8x http://t.co/QvjnGzxX6b
Capital Market Labs
24 May 15 23:11:21
$CPN Earnings are Improving. #CML_CPN #CML_Earnings http://t.co/4JUU0eKzbm http://t.co/PbxU2xmaoL
Capital Market Labs
24 May 15 17:29:00
Large Utilities Revenue $DYN $UGI $CPN $STR $GAS Chart: http://t.co/6TPJ8Pe5uL http://t.co/U9mezS8Itg
Capital Market Labs
24 May 15 16:46:01
Large Utilities Debt Level $DYN $CPN $GAS $STR Chart: http://t.co/GDKOVpS2Qb http://t.co/gIltGSNeBD
Capital Market Labs
24 May 15 14:08:14
Large Utilities Revenue vs. Earnings $UGI $CPN $GAS $TE Chart: http://t.co/PORMBBOCbJ http://t.co/LZ7gGS6RvK
Capital Market Labs
24 May 15 13:58:51
Large Utilities Revenue vs. Valuation $UGI $ITC $CPN $GAS $TE Chart: http://t.co/zHKhXLY7ms http://t.co/w933XZ7ohq
Capital Market Labs
24 May 15 13:57:07
Large Utilities Cash from Operations vs. Stock Buy-backs $UGI $CPN $STR $HE Chart: http://t.co/7WJN5VYoto http://t.co/6yCNVoWeSf
Capital Market Labs
24 May 15 10:38:13
Large Utilities Assets vs. Stock Buy-backs $CPN $STR $HE Chart: http://t.co/elRXINSNyA http://t.co/UHSUO7Ib8Q
Capital Market Labs
23 May 15 20:14:22
$CPN EPS is Improving. #CML_CPN #CML_EPS http://t.co/m2J8J7Viei http://t.co/hSDLeV3UC8
Capital Market Labs
23 May 15 13:26:05
$CPN Earnings are Rising. #CML_CPN #CML_Earnings http://t.co/4JUU0eKzbm http://t.co/LGJtqrkipJ
Leveraged Loans
22 May 15 09:29:25
$1.6B Calpine TLB-5 wraps at tight end of talk, enters trading mart atop new-issue price $ http://t.co/tMafIQ7Tkm $CPN #energy
Reggie Noble
22 May 15 09:17:10
$cpn Just started an initial long position here...Lots of activity in the August calls..
Capital Market Labs
22 May 15 06:59:56
$CPN EPS is Improving. #CML_CPN #CML_EPS http://t.co/m2J8J7Viei http://t.co/xzJJLPbzph
dailystockplays.com
21 May 15 14:36:48
1234 Bearish http://t.co/ml0VjHC2xX $BIDU $GXP $CMCSA $GLW $SNI $NAVI $ADT $FCAU $BURL $GNTX $AGNC $GOOG $NLY $DNR $ACE $MPEL $CPN $TEVA
Capital Market Labs
21 May 15 13:59:23
$CPN Earnings are Growing. #CML_CPN #CML_Earnings http://t.co/4JUU0f2azW http://t.co/ETfq684MHt
Daily Contracts
21 May 15 11:02:02
Real-Time feed of company contracts, original agreements and executive updates from $CPN http://t.co/TVCLepWAOm
Ben Obadia
21 May 15 04:11:02
utilities seeing lots of bullish flow last few weeks $EIX $NRG $EXC $CPN will do better in higher interest environment
ProVesting
21 May 15 01:28:03
$CPN: Calpine Corporation (NYSE:CPN) Sees Large Outflow of Money: http://t.co/MwjYXAISWf
Capital Market Labs
20 May 15 16:16:42
$CPN EPS is Improving. #CML_CPN #CML_EPS http://t.co/m2J8J7Viei http://t.co/Y8lH02TUlX
sobthana
20 May 15 06:19:54
หมั่นตรวจเยี่ยมกิจการที่เรามีส่วนร่วมเป็นเจ้าของ $CPN จ.อุดรฯ #CentralplazaUdonthani http://t.co/fQXf5SVQFO
ProTradersNews
20 May 15 06:16:03
$CPN: Calpine Corp (NYSE:CPN) on Watch List: http://t.co/P0S4CF2Uyp
Breaking News Now
20 May 15 03:33:02
$CPN: Large Outflow of Money Witnessed in Calpine Corporation: http://t.co/2h4wgeOk7K
Capital Market Labs
19 May 15 21:03:59
$CPN Earnings are Growing. #CML_CPN #CML_Earnings http://t.co/4JUU0eKzbm http://t.co/JfWvHTgLlq
				
				
By  +Follow June 19, 2013 9:00AM
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