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How To Exit Winning Trades Part 2

By  +Follow June 19, 2013 9:00AM
Tickers Mentioned:

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
Stocks Pastor
28 Aug 15 10:47:46
Let's see how focus play for this week performs: $CPN buy level: $15. Closed at $16.45. $ZIOP buy level $7.10. Closed at $9.20.
Harry Walkman
28 Aug 15 10:36:03
$CPN Calpine Corp (NYSE:CPN) in Excellent Position http://t.co/P7fv2OLJzq
28 Aug 15 10:30:13
CPN 16.03 Calpine Corp $CPN added to my watch list. Right now with CPN I am watching the last price 16.03 High http://t.co/sqglrRelPc
Momentum PR
28 Aug 15 09:01:28
The #MostActive before noon on the #CSE. #Investing #Momentum #SmallCap $BBA $PVO $HMK $EAT $CPN
28 Aug 15 08:26:55
Volume Alert - CPN 16.40 Calpine Corp $CPN Hit a high today of 16.45 Closing the day 10:30 at 16.40 +0.51 +3.2 http://t.co/vutLkL5sZB
28 Aug 15 03:22:04
$CPN $SPAN: Stocks in Focus: Calpine Corp. (NYSE:CPN), Span-America Medical …: http://t.co/1B0Fc1py2B
Top Moving Stocks
28 Aug 15 02:54:35
Calpine Corporation $CPN Price Target Update
Penny Stocks Buzz
28 Aug 15 02:50:26
Short Interest Update on Calpine Corporation $CPN
Penny Stocks Buzz
28 Aug 15 02:50:09
Calpine Corporation $CPN Ratings Update
Penny Stocks Buzz
28 Aug 15 02:49:56
Shares of Calpine Corporation $CPN Sees Large Inflow of Net Money Flow
Penny Stocks Buzz
28 Aug 15 02:49:31
Shares of Calpine Corporation $CPN Drops by -7.16%
Penny Stocks Buzz
28 Aug 15 02:48:42
Evercore Partners Rating Update on Calpine Corporation $CPN
Penny Stocks Buzz
28 Aug 15 02:48:22
Calpine Corporation $CPN Analyst Price Target Update
Penny Stocks Buzz
28 Aug 15 02:45:59
Evercore Partners Rating Update on Calpine Corporation $CPN
Penny Stocks Buzz
28 Aug 15 02:45:40
Calpine Corporation $CPN Analyst Price Target Update
Penny Stock Picks
28 Aug 15 02:21:45
Shares of Calpine Corporation $CPN Sees Large Inflow of Money
Penny Stock Picks
28 Aug 15 02:21:14
Zacks Short Term Rating on Calpine Corporation $CPN
Penny Stock Picks
28 Aug 15 02:18:38
Calpine Corporation $CPN Ratings Update
27 Aug 15 23:27:55
$ANFI huge bounce play as short attack put in doubt. 100%-200% upside potential $COO $CPN $JBHT investors read http://t.co/L1jwUV6Bag
Stocks Pastor
27 Aug 15 22:06:52
$ATML, $CPN, $SUNE and $CY. All have been a monster since mentioned on Monday. #Focus play at $9 from $7 entry .
27 Aug 15 20:58:19
RT @PsnTc: cpn ต้องลงห้างในเมืองรองๆ แล้ว เมืองหลักน่าจะหมดแล้ว หลังจากนี้ยังจัด $cpn เป็นพวกเติบโตสูงอยู่มะ #สร้างสวนดอกไม้ให้ประเทศบ้าง…
27 Aug 15 20:54:08
cpn ต้องลงห้างในเมืองรองๆ แล้ว เมืองหลักน่าจะหมดแล้ว หลังจากนี้ยังจัด $cpn เป็นพวกเติบโตสูงอยู่มะ #สร้างสวนดอกไม้ให้ประเทศบ้างไหม
27 Aug 15 15:16:24
27 Aug 15 15:04:51
Scan results - Stochastic Buy Signal today: $FCX $PSG $TFM $VMC $INTU $TUP $CPN $BZH $UVE $NWSA ... http://t.co/6SfkZZW2lM
27 Aug 15 10:47:12
Calpine Rating Reiterated by Deutsche Bank $CPN http://t.co/K3bpbP9pwO
Stocks Pastor
27 Aug 15 10:30:49
$CPN monster
Nikolai Kondratiev
27 Aug 15 07:07:47
$CPN 13.5% free cash flow yield to equity growing to 18% yield next year (simply b/c 8% notes can be retired). What am I missing?
zAii Kittiya
26 Aug 15 20:03:32
$CPN 42.50 +1 bid
26 Aug 15 15:13:23
Lizard Bullish http://t.co/LDIt2rPAhj $TOL $COG $WY $TEF $ABT $FE $CPN $SLV $PFG $PBI $GXP $PTEN $MPC $PCG $MAS $PEG $ARNA $MPW
26 Aug 15 15:05:59
Scan results - Lizard Bullish today: $SIAL $TOL $COG $SBGI $WY $TEF $ABT $EV $FE $CPN ... http://t.co/WGtxr2f4or
26 Aug 15 12:13:32
$AER $BMY $CNQ $CPN $ESI $GGB $GGP $GNW $SGEN autocharts @ http://t.co/f6cpQoVS67
Market Int Center
26 Aug 15 11:27:06
Calpine $CPN Trading Near $16.78 Resistance Level ( http://t.co/uFb9RFsbRT )
Momentum PR
26 Aug 15 10:57:30
The most active on the #CSE so far today. #Investing #SmallCap #Momentum $AFI $DHC $CPN $RFR $GNI
Thomas Collins
26 Aug 15 08:35:45
$CPN Zacks Short Term Rating on Calpine Corporation (NYSE:CPN) http://t.co/pO9t5lqrrX
Stocks Pastor
26 Aug 15 08:20:36
26 Aug 15 08:14:03
Emylers: Estrella's Sizzling Hot Stock Plays: CPN Stock 15.25 Calpine Corp $CPN Hit a 52 week http://t.co/FUhKtaP3Ra
26 Aug 15 08:13:31
$ACI $AU $CPN $DXD $ECA $GG $NEM $SLW $WPX autocharts @ http://t.co/f6cpQoVS67
26 Aug 15 08:10:51
CPN Stock 15.25 Calpine Corp $CPN Hit a 52 week low of 14.93 Closing the day 10:45 at 15.25 +0.11 +0.73% With http://t.co/lSRpZcySEV
Clair Voight
26 Aug 15 07:54:27
$CPN Calpine Corporation Short Interest Update http://t.co/g1ekaFiSb3
Sleek Money
26 Aug 15 06:37:32
Calpine Given Buy Rating at Deutsche Bank $CPN http://t.co/ZLRnnO5FLk
25 Aug 15 15:25:23
Below Keltner http://t.co/RSlO2pHeav $VZ $MRK $JNJ $BBRY $MDT $PEP $TGT $NRF $ESRX $CPN $MPW $KHC $VTR $PCL $NEE $SGYP $ADP $HFC
Breaking News Now
25 Aug 15 15:05:02
$CPN: New Insider Transaction on CPN by President & Chief Exec.Officer: http://t.co/NVJBe4fv6G
25 Aug 15 15:04:12
$CPN Calpine Form 4 (Statement of Changes in Beneficial Ownership) SEC Filing From our Stock News Alerts App
Insider Alerts
25 Aug 15 15:04:10
NEW insider transaction on $CPN reported a moment ago: http://t.co/UqX94cVGql
BNK Invest
25 Aug 15 13:33:43
Shares of $CPN Now Oversold $FXU #energy http://t.co/vjdzGLReRk
Consumer News
25 Aug 15 07:25:36
Deutsche Bank Reiterates “Buy” Rating for Calpine $CPN http://t.co/JAu8wAI4dI #acn
US Banking News
25 Aug 15 07:21:25
Calpine Rating Reiterated by Deutsche Bank $CPN http://t.co/ezcm9WPHKT
Ticker Report
25 Aug 15 07:13:47
Calpine Rating Reiterated by Deutsche Bank $CPN http://t.co/sZWCopo3cS
Dakota Financial
25 Aug 15 07:07:43
Calpine Rating Reiterated by Deutsche Bank $CPN http://t.co/bUgc4oo5UQ
25 Aug 15 07:03:55
Calpine's buy rating reiterated at Deutsche Bank. http://t.co/QJfoJfhzaz $CPN #CPN
By  +Follow June 19, 2013 9:00AM



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