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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.


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Results for CPN
Market Int Center
20 Oct 14 11:20:01
Calpine $CPN Showing Resistance Near $21.02 ( http://t.co/mdjxqoFbxA )
$Stocknewsalerts
20 Oct 14 03:16:53
$CPN ALERT: New Calpine Corporation SEC Filing From our Stock News Alerts App
NASDAQ
20 Oct 14 03:16:16
$CPN - Amended Statement of Beneficial Ownership (sc 13d/a) http://t.co/BoA1dfctt7
InsiderTradingWire
20 Oct 14 03:15:08
13D Alert for CALPINE CORP - $CPN - #13D #insidertrading - http://t.co/nAHIdUr4VQ
whalewisdom
20 Oct 14 03:14:01
New SC 13D/A from LUMINUS MANAGEMENT LLC concerning $CPN. See details at http://t.co/dDRWFC03lM
4-traders.com
17 Oct 14 22:30:08
Calpine : Sets Release of 3rd Quarter 2014 Results http://t.co/LbX2R2xOqv $CPN
Ticker Report
17 Oct 14 06:44:24
Calpine’s Hold Rating Reiterated at Jefferies Group $CPN http://t.co/0MhIx7z06n
TickerChirp
16 Oct 14 18:34:08
The Most Popular Tweets Relevant to $CPN on 10/17/2014 http://t.co/cFg1hK3oXo
WKRB News
16 Oct 14 05:12:22
Calpine Earns “Hold” Rating from Jefferies Group $CPN http://t.co/thv7jiJaoU
Media Sentiment
15 Oct 14 12:31:51
$CPN received a new alert. Find out why at http://t.co/5udYd0Ofs6 #stocks #daytrading #trading #mkt #NYSE #NASDAQ #markets 389
Market Int Center
15 Oct 14 12:28:08
Calpine $CPN Showing Bearish Technicals ( http://t.co/n0ZARtsVmF )
US Consumer News
15 Oct 14 10:25:34
Calpine's hold rating reiterated at Jefferies Group. $22.00 PT. http://t.co/IgAhnG0Che $CPN #CPN
Analyst Ratings
15 Oct 14 10:22:24
Calpine's hold rating reiterated at Jefferies Group. $22.00 PT. http://t.co/SeCynIsYDh $CPN #CPN
Sleek Money
15 Oct 14 10:19:28
Calpine’s Hold Rating Reiterated at Jefferies Group $CPN http://t.co/JF7073xtCp
US Banking News
15 Oct 14 10:14:41
Jefferies Group Reaffirms Hold Rating for Calpine $CPN http://t.co/blePRPKnoo
BNK Invest
14 Oct 14 13:48:12
Calpine Larger Than S&P 500 Component Laboratory Corporation of America Holdings $CPN $LH #stocks http://t.co/wN5rw4JjZ3
TalkMarkets
14 Oct 14 12:38:09
The 10 Biggest #Energy Company #Bankruptcies $PCG $CPN http://t.co/QuoyeFMvCi
US Banking News
14 Oct 14 06:19:02
Analysts Give Average Rating of Buy to Calpine $CPN http://t.co/BLBCLR2nBl
Market Int Center
14 Oct 14 06:04:02
Calpine $CPN Trading Near $21.57 Resistance Level ( http://t.co/iEDmQjRHEb )
TalkMarkets
14 Oct 14 01:02:02
The 10 Biggest #Energy Company #Bankruptcies $PCG $CPN http://t.co/QuoyeFMvCi
4-traders.com
13 Oct 14 22:35:13
Calpine : California Energy Commission Taps Calpine to Received $3M Grant http://t.co/LElPLpjsMs $CPN
Dunk Paft
12 Oct 14 23:49:04
RT @nekoinvestor: ไม่ว่า $CPN จะแพ้คดีหรือไม่ ยังไงก็ได้ค่าสินไหมจากกรมธรรม์ก่อการร้ายอยู่ดี ส่วนนี้ก็จะบันทึกเป็นกำไรด้วย ผมว่าเรื่องนี้ไ…
มีปลาหามีแมวไม่
12 Oct 14 23:48:47
ไม่ว่า $CPN จะแพ้คดีหรือไม่ ยังไงก็ได้ค่าสินไหมจากกรมธรรม์ก่อการร้ายอยู่ดี ส่วนนี้ก็จะบันทึกเป็นกำไรด้วย ผมว่าเรื่องนี้ไม่ใช่ปัญหา
				
				
By  +Follow June 19, 2013 9:00AM
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