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.


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 ZMH
בורסה-מאיה: מתפרצות
22 Nov 14 22:55:43
צמח המרמן מו"מ למכירת זכ' במקרקעין בגני תקווה לצד ג' בכ-91מ' שח $ZMH http://t.co/jKglxDEquf
TickerChirp
22 Nov 14 22:05:05
Top Tweets About $ZMH (Zimmer Holdings Inc symbol ZMH) on 11/23/2014 http://t.co/XLrmUM2kjH
Forrest Cowles
22 Nov 14 03:16:43
Get #Pennystock Research on $VAR $SDRL $ZMH $QLYS #investing http://t.co/Ncy9sRPjOk
Necole Diaz
22 Nov 14 02:50:13
Did you lose money on $ZMH $TMO $SBAC $S #wealthmanagement http://t.co/gfgVsIiYfR
Shawn Hager
22 Nov 14 02:28:34
Bad #Invesments like got you down $ZMH $MORN $DSW $GRPN #overvalued http://t.co/fhTnSigJ50
Albert Davies
21 Nov 14 21:38:05
Awesome #Stock #Research on $ZMH $RLGY $ASBC $GRPN #economy http://t.co/zqRC5BAO4w
chartguy89
21 Nov 14 21:33:00
ZMH 110.48 Stock Charts $ZMH Zimmer Holdings Inc. (NYSE) Last Updated: 11/21/2014 23:32:59 ZMH Stock Chart - 1 http://t.co/XECmdzP7Dr
Hilde Phipps
21 Nov 14 21:01:13
Sick and Tired of losing money on $ZMH $SBUX $HUN $IBM #NASDAQ http://t.co/LwSkETGGTi
Roxann Bayer
21 Nov 14 19:23:16
#Stocks you migh want to Sell $ZMH $AMG $ILMN $YOD Visit http://t.co/a4qK8w5VVq
Noemi Whited
21 Nov 14 18:03:51
Are you looking for more winners like $ZMH $EWBC $TWO $RAX Check out http://t.co/LyqEPVXtYV
Katheleen Ventura
21 Nov 14 17:47:48
Are you thinking of Investing in $UDR $ZMH $RLGY $CADX Must have http://t.co/BbvVIrTlzv
Stockaholics
21 Nov 14 17:36:43
578% Gains On Penny Stocks in one month! Plus a New Pick Is Coming: http://t.co/2W3yKD2d5Q $MET $BXP $ZMH
Keesha Mallory
21 Nov 14 17:26:47
Are you considering buying $TRI $CNK $ZMH $CSIQ #moneymanagement http://t.co/poqZk7CUcc
Dana Mcginnis
21 Nov 14 16:24:55
#Stocks you might want to hold onto $ALTR $ZMH $GNW $SLW #StockMarket http://t.co/cXLR7oec2B
Astrid Walton
21 Nov 14 15:30:33
Couple of Stocks you should Watch $ZMH $CPA $MB $CI #wallstreet http://t.co/ltYPwXQBLM
Ali Tyree
21 Nov 14 15:05:42
Get Free research on $JWN $BIIB $ZMH $AMZN Try this http://t.co/fwJt9GEfLa
Carletta Fisher
21 Nov 14 14:50:30
5 Stocks you should be watching $HBI $OFC $ZMH $NUAN Goto http://t.co/URcwKLczQl
Rush Seaman
21 Nov 14 14:23:10
Todays movers to research $ZMH $KIM $ENR $CI #financial http://t.co/nB1Eamc6jk
Carlyn Mccloskey
21 Nov 14 13:03:24
Looking for the next $ZMH $EA $HUN $FEYE Click http://t.co/EoLiU5amPE
Lyndsay Fitzsimmons
21 Nov 14 11:43:19
#Stocks you might want to buy $CINF $CTRX $ZMH $GOOG Must have http://t.co/baPj0tG7jQ
Shaquita Foy
21 Nov 14 11:43:15
Latest information on #stocks like $ZMH $ORLY $XLNX $AMZN #Stock http://t.co/q8wdGmmy6X
Stockaholics
21 Nov 14 11:37:05
578% Gains On Penny Stocks in one month! Plus a New Pick Is Coming: http://t.co/2W3yKD2d5Q $MET $BXP $ZMH
Lael Nation
21 Nov 14 11:32:04
#Stock Watchlist you should be looking at $ALTR $ZMH $CFR $SLW #NASDAQ http://t.co/reqRGGLSYH
Nga Fortenberry
21 Nov 14 08:03:54
Are you putting your money in $ZMH $PKI $O $SLW Click http://t.co/hXLpZUr8cZ
Penny Stock Secret
21 Nov 14 06:58:32
The Most Accurate Penny Stock Alert Service Made $54,000 Yesterday Click here http://t.co/SVqoMlijqL .. $MET $BXP $ZMH
iHangout
21 Nov 14 06:39:13
http://t.co/a7S0ZZgFj1 chartguy89: Stock Charts: ZMH 110.12 Stock Charts $ZMH Zimmer Holdings Inc. http://t.co/WmLWYmdAgP
chartguy89
21 Nov 14 06:36:17
ZMH 110.12 Stock Charts $ZMH Zimmer Holdings Inc. (NYSE) Last Updated: 11/21/2014 08:36:21 ZMH Stock Chart - 1 http://t.co/D9B0eeEPCH
Thuy Espinal
21 Nov 14 04:26:38
#Stock Market Reports you need on $NFX $ZMH $EQR $RAX #singedinvestor http://t.co/t7f6v82Lh7
Keenan Jett
21 Nov 14 04:22:49
Insider Trading updates on $ZMH $BBBY $HTA $QLYS #liquidity ACCOUNT_SUSPENDED
Wilburn Miller
21 Nov 14 03:44:32
Are you thinking of Investing in $ZMH $SYK $NUAN $IR Try this http://t.co/rJlbJu6ECG
Arlo Barron
21 Nov 14 02:48:57
$URBN Todays Stocks you should Watch $ZMH $AET $VFC #wallstreet ACCOUNT_SUSPENDED
Helena Sasser
21 Nov 14 02:43:14
Are you considering selling $NFX $ZMH $BRE $QLYS I suggest http://t.co/pZ1l7PMc7I
Beckie Whittington
21 Nov 14 02:37:00
Are you Bullish on these #stocks $CHS $ZMH $S $YOD Goto http://t.co/SsW7ODrnCb
Lettie Hatfield
21 Nov 14 02:28:12
Get #Pennystock Research on $ZMH $AXS $ZBRA $LGND #overvalued http://t.co/YMTA9alZYU
Suzi Harter
21 Nov 14 02:05:45
Top #Stocks today. Find out why. $WRB $NCR $ZMH $QLYS Click http://t.co/dWwo9PCGAd
Stockaholics
21 Nov 14 01:44:50
578% Gains On Penny Stocks in one month! Plus a New Pick Is Coming: http://t.co/2W3yKD2d5Q $MET $BXP $ZMH
Ali Lawrence
21 Nov 14 01:31:47
This weeks Stocks you should Watch $ZMH $IP $VLY $USD #investing http://t.co/mGT8JZbanj
Mauro Atwood
21 Nov 14 00:54:55
Latest Earnings info on $WIN $TRV $ZMH $SSO View now http://t.co/2ZkVxKoTBR
Arielle Messer
20 Nov 14 23:29:50
Are you considering buying $COL $CNK $ZMH $IR #NASDAQ http://t.co/qMXrkQndlR
Randell Sotelo
20 Nov 14 22:02:06
Are you thinking of Investing in $NU $ZMH $VTR $USD #overvalued http://t.co/xuuyilAJ3k
Mariano Lehmann
20 Nov 14 21:00:25
Are you thinking of Investing in $ESRX $SSYS $ZMH $GAIN Give it a try http://t.co/Yy4PueCRfJ
Anjelica Mccart
20 Nov 14 20:45:18
Are you thinking of Investing in $EOG $ZMH $HTS $RAX #personalfinance http://t.co/vupP4WErfs
Keesha Mallory
20 Nov 14 20:38:11
Looking for more info on $IBKR $CNK $ZMH $SLW Goto http://t.co/bkvHu3sjSi
Cyndi Fleck
20 Nov 14 19:43:39
Is it breakout time on $BK $GGG $ZMH $FB Check out ACCOUNT_SUSPENDED
Cheyenne Bock
20 Nov 14 19:21:41
$SHW Get more info on $ZMH $S $ISRG #Research ACCOUNT_SUSPENDED
Francene Vitale
20 Nov 14 19:15:35
$MAC #Pennystock Research on $ZMH $ALXN $CRAY #economy ACCOUNT_SUSPENDED
Williemae Gerard
20 Nov 14 19:10:48
Todays movers to research $ZMH $AMG $DDR $RAX #financialnews http://t.co/wThsGjStkn
Stellan Tharp
20 Nov 14 18:54:57
Find the next hot #pennystock $IDXX $ZMH $PM $S #financialnews http://t.co/RIp2A0cbyS
Alycia Adamson
20 Nov 14 18:39:10
Wow. Great #Stock #Research on $ZMH $FLO $CIE $AMZN Must have ACCOUNT_SUSPENDED
Shelli Simpkins
20 Nov 14 18:17:59
Are you thinking of selling $ZMH $EQR $MB $GOOG #Stock ACCOUNT_SUSPENDED
				
				
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.