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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
stockblaster14
23 Oct 14 17:38:32
Calpine Corp (CPN) 21.86 $CPN Awards for Innovative Use of Software Products Presented at 2014 InStep Users Co http://t.co/gA8c5qpPgM
wininstocks2014
23 Oct 14 17:27:41
CPN 21.86 Stock Charts $CPN Calpine Corp. (NYSE) Last Updated: 10/23/2014 19:27:41 CPN Stock Chart - 1 Month h http://t.co/jyrnXP8YKF
wininstocks2014
23 Oct 14 17:26:27
CPN 21.86 Stock Charts $CPN Calpine Corp. (NYSE) Last Updated: 10/23/2014 19:26:27 CPN Stock Chart - 1 Month h http://t.co/HEXLdkB4u0
Daily Contracts
23 Oct 14 09:02:06
Real-Time feed of company contracts, original agreements and executive updates from Calpine $CPN http://t.co/aj3BYdYUAl
stockblaster14
22 Oct 14 14:58:08
Calpine Corp (CPN) 21.54 $CPN Awards for Innovative Use of Software Products Presented at 2014 InStep Users Co http://t.co/BjB3ISIWpq
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22 Oct 14 13:48:04
Algorithmic trading CLOSING Oct/22 $CRK(6.7 %) $CPN(-8.1 %)
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22 Oct 14 13:39:05
stockblaster14: Stock Alerts: Calpine Corp (CPN) 21.54 $CPN Awards for http://t.co/mPvYecTg7K
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Wednesday's ETF Movers: IDU, GDXJ http://t.co/OIf6Nqvfti $NRG $CPN $MUX
wininstocks2014
22 Oct 14 13:19:31
CPN 21.54 Stock Charts $CPN Calpine Corp. (NYSE) Last Updated: 10/22/2014 15:19:40 CPN Stock Chart - 1 Month h http://t.co/JDWiisO4yi
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via #AlertTrade Price Action Alert $CPN - CALPINE #stocks #intraday http://t.co/VS8RO1bzXJ
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20 Oct 14 20:42:53
RT @bullriders1: $CPN Geothermal power industry lost steam but may be poised for comeback... http://t.co/dGSIqGFNEY
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20 Oct 14 20:34:29
$CPN Geothermal power industry lost steam but may be poised for comeback... http://t.co/dGSIqGFNEY
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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
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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
				
				
By  +Follow June 19, 2013 9:00AM
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