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 3: Candle Reversals

By  +Follow July 22, 2013 12:37PM
Share:
Tickers Mentioned:

In this final article in this 3-article series (read part 1 and part 2), we’ll look at how to use candlestick chart patterns along with classic Western technical exit signals to decide when to start exiting winning trades. Candlestick charts were first revealed to the Western world by expert Steve Nison, the world’s foremost authority on the subject. Learning how to exit successful trades with the help of candlestick charts can be particularly effective when combined with classic support/resistance exhaustion signals, to lock in potential gains. This article will cover both swing and day trading candlestick reversal examples.

Using Shooting Stars To Exit Open Swing Trading Long Trades
A shooting star is simply a candlestick that occurs after an uptrend that has an upper shadow of at least twice the real body height, and signals a possible reversal. It looks like a box with a large stick on top of it, visually. Selling right under a loss of this candle is a good idea for exiting any open longs, particularly for short-term trading.

In Figure 1, Zimmer Holdings Inc. (ZMH) , we see that a 15-minute shooting star on this 15-day chart indicates initial weakness following it’s breakout. To exit, we scale out of half the trade if price action gets 1 point under the low of the shooting star. For this ZMH swing trading chart, that would be at (84.5 – 1.0) = 83.5 as the first place to start selling. The secondary entry is to be set at a maximum of 1 full point under the cumulative 2-day low, in this case (80.7 – 1.0) = 79.7 for the second, final exit.

Whenever you are in a winning breakout swing trade, it’s always important to get out fast at the first sign of trouble, at least for 50% of all open shares, to lock in a profit.  Many traders wait far too long to exit their trades, waiting until catastrophic large reversals have wiped out part of all of their unrealized P&L (profit and loss) open gains.  Using the 15-minute shooting star candles on a 15-day chart is a very smart way to signal the potential reversal of the uptrend, to start selling into.

Dual Swingtrading Exits: Shooting Stars and 50 Moving Average (MA) Exits

Many traders like to use multiple timeframes to decide when to exit their trades, and this is a reasonable approach, when done correctly. Daily candlestick charts for short-term trading are best viewed on a 90-day daily candlestick timeframe with 50, 100 and 200-period simple moving average (MA) lines.  

Combining candles with major MA lines that institutional traders use can give astute active traders valuable insights into key buying and selling support and resistance areas to use. Making entry and exit decisions with this timeframe chart is risky if traders use too-large stops and trailing stops, however, so it’s important to keep the 15-day chart patterns in mind when deciding how to exit as well.

In Figure 2, Mattell Inc. (MAT) , we see a shooting star that signified weakness and a potential reversal in the uptrend, which did in fact occur during the subsequent trading days after this was seen.  A loss of the low of the shooting star is a good time to start exiting open long positions. The second and final scale-out sell signal is when the candles start to get below the red 50MA line, which occurred in late May.   

Day Trading Exit Signals Using 5-Minute Candlestick Patterns
In addition to shooting stars, another favorite exit signal is a “bearish engulfing” pattern, in which the real body of a candle wraps around, or engulfs, the prior candle, taking out new lows. In Figure 3 Tesla Motors Inc. (TSLA) we see a bearish engulfing pattern near the 126.5 price level. It’s often wise to wait until price action loses support under the 2nd red engulfing candle (in this case, 126.5 - .35) = 126.15 to exit half the open intraday trade.

A second exit signal is generated by trailing a stop at just under the nearest bear cup pattern.  In this chart, a bear cup was formed beterrn 124.0 and 125.0.  A loss of the 124.0 support line would provide the second sell signal, to close out the remaining open long, if it loses that support line. When day trading, it’s helpful to look for shooting stars, engulfing patterns and bearish cups to tell the trader when to exit their open long positions.

As we explored in the earlier articles in this series, using a series of 2 exits is a smart scaling-out approach since it helps traders stay alive in a trade despite an initial early sell signal (in case it pivots and regains buying momentum).   The best approach is always to exit at least half the open trade at the first sign of trouble, and use a clearly-defined exit strategy with the goal of maximizing profits by selling open winning trades at the first sign of reversals.  

Using these candle signals along with classic Western technical indicators like moving average crossovers and support areas can be a valuable approach when deciding how to trade more professionally.

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.


Signup for our daily newsletter and get our best articles emailed right to you!

Results for ZMH
Consestimate
20 Aug 14 07:30:24
Is This Dividend Stock Worth Your Time? (ZMH) . #Bullish or #Bearish on $ZMH. Share with us here: http://t.co/YHaCkZLi8j
Investor Wand
20 Aug 14 05:16:09
Is $ZMH a BUY? William Blair & Company, L.L.C. thinks so:http://t.co/0id8GCj9Hh
Market Monitor
19 Aug 14 14:56:13
$ZMH: News Recap - Antares Pharma Inc (NASDAQ:ATRS), Zimmer Holdings, Inc ... http://t.co/v9VklGG0YU http://t.co/A8qWa7h9wV
$Stocknewsalerts
19 Aug 14 14:31:03
$ZMH New SEC Document(s) for Zimmer Holdings, Inc. From our Stock News Alerts App
WKRB News
19 Aug 14 04:26:20
Zimmer Holdings Rating Increased to Outperform at William Blair $ZMH http://t.co/epvpCFMEjN
Market Int Center
18 Aug 14 12:19:39
Zimmer $ZMH Trading Near $98.95 Resistance Level ( http://t.co/nsBDG9ZIH8 )
The Fly
18 Aug 14 07:47:32
$ZMH Zimmer advances following analyst upgrade: Full Story http://t.co/OJ7k0N4QmW
The Fly
18 Aug 14 07:01:12
$ACHN $CEO $DG $EQR $HMSY $HPQ $HK $KS $SPWH $WLK $WETF $ZMH On The Fly: Analyst Upgrade Summary: Full Story http://t.co/L8s10zxEHn
Financial Updates
18 Aug 14 06:56:13
$ZMH: ZIMMER HOLDINGS INC Files SEC form 10-Q, Quarterly Report http://t.co/2gX09KL4wY http://t.co/hWctsSAPFA
COCKRELL GROUP
18 Aug 14 06:47:01
Atlantic Equities discontinued coverage of: Abbott $ABT, Covidien $COV, CR Bard $BCR, DaVita Healthcare Partners $DVA, Zimmer Holdings $ZMH.
TheStreet Alerts
18 Aug 14 06:15:33
Will This Upgrade Help Zimmer $ZMH Stock Today? http://t.co/QO5TXW4XPR
Ryan Rhoads
18 Aug 14 05:59:52
RT @jgallo91: Street #upgrades: $KS $ACHN $HPQ $HK $WLK $ZMH $SPWH $WETF
   $TOCK$
18 Aug 14 05:55:55
Street #upgrades: $KS $ACHN $HPQ $HK $WLK $ZMH $SPWH $WETF
Karl Eggerss
18 Aug 14 05:53:28
Street #upgrades: $KS $ACHN $HPQ $HK $WLK $ZMH $SPWH $WETF
US Banking News
18 Aug 14 05:20:14
Zimmer Holdings Upgraded to Outperform at William Blair $ZMH http://t.co/ZzHtoplQAd
Market Monitor
18 Aug 14 04:56:14
$ZMH: Final Glance: Medical Devices companies http://t.co/7Wyu1BWoY1 http://t.co/KkfD9UPwHw
InterCooler
18 Aug 14 04:50:24
William Blair Upgrades Zimmer Holdings to “Outperform” $ZMH http://t.co/uHJyRywNST
US Consumer News
18 Aug 14 04:41:05
Zimmer Holdings upgraded by William Blair to outperform. http://t.co/1QLwhoZFKj $ZMH #ZMH
Media Sentiment
18 Aug 14 04:39:59
$ZMH received a new alert. Find out why at http://t.co/WHJp8eTsSr #stocks #daytrading #trading #mkt #NYSE #NASDAQ #markets 63
Analyst Ratings
18 Aug 14 04:36:30
Zimmer Holdings upgraded by William Blair to outperform. http://t.co/nYFZ1lv8LB $ZMH #ZMH
Media Sentiment
18 Aug 14 04:34:58
$ZMH received a new alert. Find out why at http://t.co/WHJp8eTsSr #stocks #daytrading #trading #mkt #NYSE #NASDAQ #markets 56
SIAnalystWire
18 Aug 14 04:31:13
William Blair Upgrades Zimmer Holdings $ZMH to Outperform http://t.co/kc4XtgGe7M
Day Trade Alerts
18 Aug 14 04:10:57
RT @theflynews: $ZMH Zimmer upgraded to Outperform from Market Perform at William Blair: Full Story http://t.co/nRYapvPsDb
Media Sentiment
18 Aug 14 04:05:03
$ZMH received a new alert. Find out why at http://t.co/WHJp8eTsSr #stocks #daytrading #trading #mkt #NYSE #NASDAQ #markets 40
The Fly
18 Aug 14 04:04:29
$ZMH Zimmer upgraded to Outperform from Market Perform at William Blair: Full Story http://t.co/nRYapvPsDb
TickerChirp
17 Aug 14 09:46:05
Top Tweets Regarding $ZMH on 08/17/2014 http://t.co/4fHLDx7rfk
Market Compass
15 Aug 14 09:56:15
$ZMH: Zimmer Holdings Receives Consensus Rating of "Buy" from Brokerages (NYSE ... http://t.co/9VmEGzjXC9 http://t.co/ZeTeHIxrUW
RB Trader
15 Aug 14 09:35:02
Biggest size trades today. $WLT $OXY $ACI $ZMH $PBR http://t.co/J2tnmxCpmx
RB Tech Social
15 Aug 14 09:35:02
Biggest size trades today. $WLT $OXY $ACI $ZMH $PBR http://t.co/vZ3nSn3QFw
RB Trader
15 Aug 14 08:35:08
Biggest size trades yesterday. $WLT $OXY $ACI $ZMH $PBR http://t.co/J2tnmxCpmx
RB Tech Social
15 Aug 14 08:35:07
Biggest size trades yesterday. $WLT $OXY $ACI $ZMH $PBR http://t.co/vZ3nSn3QFw
Livevol Community
15 Aug 14 05:00:03
HIGH CALL VOLU $ZMH 3166% $CLNY 2249% $OXY 1717% $EL 1604% $CPA 1566% $PX 1243% $SEE 1211% $ALV 1054% http://t.co/gwzPxh6wrr
Financial News
15 Aug 14 04:56:14
$ZMH: Zimmer Holdings Receives Consensus Rating of "Buy" from Brokerages (NYSE ... http://t.co/O0ezQfU6II http://t.co/PKc3D83p4g
FonsieTrader
15 Aug 14 03:57:41
Parabolic Sar Buy signals 3/3 $PLUG $QCOM $QCOR $QGEN $STX $SWKS $NVAX $VRTX $VTNR $WB $ZMH $ZNGA $ZTS http://t.co/uZiVzwtRd0
Dan Nathan
15 Aug 14 03:31:19
Too Many Options: $OXY, $CSCO, $SLV, $ZMH, $JCP http://t.co/gVIw2SZRiF @EnisTaner
Stephen M Richardson
14 Aug 14 19:40:46
RT @rb_trader: Biggest size trades today. $WLT $OXY $ACI $ZMH $PBR http://t.co/J2tnmxCpmx
RB Tech Social
14 Aug 14 19:16:50
Biggest size trades today. $WLT $OXY $ACI $ZMH $PBR http://t.co/vZ3nSn3QFw
RB Trader
14 Aug 14 19:14:37
Biggest size trades today. $WLT $OXY $ACI $ZMH $PBR http://t.co/J2tnmxCpmx
Must Trade Medtech
14 Aug 14 14:29:47
RT @Emory_R: 6-30-14 13F for PERCEPTIVE ADVISORS Sold: $ECYT $KERX Increased: $QCOR $FOLD $RCPT New: $ZMH $AET $XLRN $AGN $MDT http://t.co…
Kyle Dennis
14 Aug 14 14:13:52
RT @Emory_R: 6-30-14 13F for PERCEPTIVE ADVISORS Sold: $ECYT $KERX Increased: $QCOR $FOLD $RCPT New: $ZMH $AET $XLRN $AGN $MDT http://t.co…
Patrick
14 Aug 14 14:02:04
RT @Emory_R: 6-30-14 13F for PERCEPTIVE ADVISORS Sold: $ECYT $KERX Increased: $QCOR $FOLD $RCPT New: $ZMH $AET $XLRN $AGN $MDT http://t.co…
joe
14 Aug 14 13:53:37
RT @Emory_R: 6-30-14 13F for PERCEPTIVE ADVISORS Sold: $ECYT $KERX Increased: $QCOR $FOLD $RCPT New: $ZMH $AET $XLRN $AGN $MDT http://t.co…
Emory Redd
14 Aug 14 13:49:57
6-30-14 13F for PERCEPTIVE ADVISORS Sold: $ECYT $KERX Increased: $QCOR $FOLD $RCPT New: $ZMH $AET $XLRN $AGN $MDT http://t.co/pZdl8WhdaO
♠Captain™
14 Aug 14 13:19:43
RT @EffectLi: Are you hanging on to $SMG $CNK $ZMH $FEYE #wallstreet http://t.co/CJD2PKKvFN
Business News
14 Aug 14 09:56:14
$ZMH: Zimmer Holdings Stock Rating Reaffirmed by Zacks (ZMH) http://t.co/jaMv8nPx05 http://t.co/aagvhg8Uaw
Livevol Community
14 Aug 14 09:00:03
HIGH CALL VOLU $ZMH 3152% $CLNY 2244% $PX 1218% $ALV 983% $GPS 479% $CPWR 458% $EWG 433% $EL 402% http://t.co/gwzPxh6wrr
Stock Market Monitor
14 Aug 14 08:56:14
$ZMH: Zimmer Holdings, Inc. Reports Second Quarter 2014 Financial Results http://t.co/olNItUCcJw http://t.co/zIiFgZqOrX
Livevol Community
14 Aug 14 08:50:05
Block Trade: 11:33 $ZMH Dec20 105 C (ARCA) 1.65 18270x Today's Full Report: http://t.co/2vFO37WApx
BlockTradeAlert
14 Aug 14 08:34:27
BLOCK TRADE: $ZMH 521,000 shares @ $97.66 [11:34:27]
				
				
By  +Follow July 22, 2013 12:37PM
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.