logo  
Sign in or Register

Already a member?

Sign in

Or sign in with your account on:

Not a member yet?

Register
    

How To Exit Winning Trades Part 2

By  +Follow June 19, 2013 9:00AM
Share:
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.


Liked What You Read? Join Equities.com and Connect With Your Favorite Financial Experts FOR FREE! Members of Equities.com gain access to our leading financial news and content, active social investment community, proprietary research tools including the 2014 Small-Cap Stars, E.V.A. reports and more.

Results for CPN
Stock_Tracker
17 Sep 14 17:41:28
Calpine Corp (CPN) 22.54 $CPN After Yesterday's Decline of 1.00%, Calpine Offers Investors Better Value Comtex http://t.co/6PaS8eON8d
iHangout
17 Sep 14 11:34:45
http://t.co/6DAsqM4AQD Stock_Tracker: Stock DD Board: Calpine Corp (CPN) 22.60 $CPN After Yesterday's http://t.co/zYBQrFeTW3
Stock_Tracker
17 Sep 14 11:31:33
Calpine Corp (CPN) 22.60 $CPN After Yesterday's Decline of 1.00%, Calpine Offers Investors Better Value Comtex http://t.co/nfaAWwabIC
Day Trade Alerts
17 Sep 14 08:22:01
via #AlertTrade SHORT Seller Alert $CPN - CALPINE #ShortSeller #Stocks http://t.co/VS8RO1bzXJ
Media Sentiment
17 Sep 14 08:05:06
$CPN received a new alert. Find out why at http://t.co/5udYd0Ofs6 #stocks #daytrading #trading #mkt #NYSE #NASDAQ #markets 204
Market Int Center
17 Sep 14 08:03:28
Calpine $CPN Showing Bearish Technicals With Support At $22.57 ( http://t.co/siOx8VYDSD )
Alpha Maven Alerts
16 Sep 14 21:33:00
$CPN, Positive, Yesterday, SD +2.49, #NYSE #Utilities
Daily Contracts
16 Sep 14 11:42:02
Real-Time feed of company contracts, original agreements and executive updates from Calpine $CPN http://t.co/TVCLeqeccW
ChartMill
16 Sep 14 08:05:02
some large player sells #stocks http://t.co/aT7Tar8wwa $FCS $WU $CPN
TickerChirp
16 Sep 14 07:14:04
Hot in Twitter About $CPN on 09/16/2014 http://t.co/JkdOKYJmZf
Daily Contracts
15 Sep 14 09:39:02
Real-Time feed of company contracts, original agreements and executive updates from Calpine $CPN http://t.co/aj3BYdYUAl
LCD News
15 Sep 14 06:23:43
Offers due tomorrow on loan OWIC ($ATVI, $BMC, $DELL $VRX); $142M BWIC on tap for today (Laureate, Newsday, $CPN) $ http://t.co/NSV0pxXjSu
Alpha Maven Alerts
14 Sep 14 22:43:27
$CPN, Positive, Yesterday, SD +2.71, #NYSE #Utilities
Alpha Maven Alerts
14 Sep 14 22:19:16
$CPN, Positive, Yesterday, SD +2.49, #NYSE #Utilities
Alpha Maven Alerts
13 Sep 14 06:51:24
$CPN, Negative, Yesterday, SD -2.21, #NYSE #Utilities
Alpha Maven Alerts
12 Sep 14 10:22:20
$CPN, Negative, Yesterday, SD -2.90, #NYSE #Utilities
LSTA
12 Sep 14 10:15:15
RT @lcdnews: Bids due Monday on $141.8M loan BWIC, include Newsday, Laureate Education, $CPN, Univision, Ortho-Clinical Diagnostic http://t…
CMCMFIN
12 Sep 14 10:10:44
RT @lcdnews: Bids due Monday on $141.8M loan BWIC, include Newsday, Laureate Education, $CPN, Univision, Ortho-Clinical Diagnostic http://t…
interestingnews
12 Sep 14 10:07:49
RT @lcdnews: Bids due Monday on $141.8M loan BWIC, include Newsday, Laureate Education, $CPN, Univision, Ortho-Clinical Diagnostic http://t…
zerohedge
12 Sep 14 10:02:44
RT @lcdnews: Bids due Monday on $141.8M loan BWIC, include Newsday, Laureate Education, $CPN, Univision, Ortho-Clinical Diagnostic http://t…
LCD News
12 Sep 14 10:00:01
Bids due Monday on $141.8M loan BWIC, include Newsday, Laureate Education, $CPN, Univision, Ortho-Clinical Diagnostic http://t.co/hXjIXadSgH
Market Int Center
12 Sep 14 08:01:00
Calpine $CPN Trading Near $22.93 Support Level ( http://t.co/SwDQ8hXx6n )
Market Int Center
11 Sep 14 11:40:00
Potential Calpine $CPN Trade Has 5.55% Downside Protection ( http://t.co/vxwrleF1AG )
Daily Contracts
11 Sep 14 07:14:02
Real-Time feed of company contracts, original agreements and executive updates from Calpine $CPN http://t.co/aj3BYdYUAl
Media Sentiment
10 Sep 14 08:19:03
$CPN received a new alert. Find out why at http://t.co/5udYd0Ofs6 #stocks #daytrading #trading #mkt #NYSE #NASDAQ #markets 245
Market Int Center
10 Sep 14 08:16:48
Calpine $CPN Showing Bullish Technicals With Support At $23.12 ( http://t.co/zcRui7g9kT )
FusionIQ
10 Sep 14 07:16:06
IQ Screen Pass - Updated Valuementum screen ... $XLS $GIS $CPN $ONNN $ PNK $KFY $EAT http://t.co/Fq3FDebNF8 via @sharethis
				
				
By  +Follow June 19, 2013 9:00AM
Share:

Comments

 

blog comments powered by Disqus

About us

Equities.com is the most advanced interactive online social ecosystem for the financial industry, serving as a resource center and next-generation communication platform that connects self-directed investors with public issuers, market experts, and professional service providers and vendors. Registered members can leverage our exclusive proprietary research tools such as the Small-Cap Stars, which outperformed 90% of all small-cap mutual funds, and robust do-it-yourself E.V.A. research reports. The Equities.com Issuer Dashboard is the ideal tool to communicate and manage investor awareness campaigns to the investment community, as well as to access valuable resources to help your company grow.

Market Data powered by QuoteMedia.
Copyright © QuoteMedia. Data delayed 15 minutes unless otherwise indicated. Terms of Use.