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How To Exit Winning Trades Part 3: Candle Reversals

By  +Follow July 22, 2013 12:37PM
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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.


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Results for ZMH
Rag Time Gal
25 Oct 14 03:05:34
RT @StockSignaling: Earnings Surprises: $MDP $WOOF $DECK $ZMH $IMAX $CERN $AB $DLX $GHL $LOGM $EQM $AMX $GMT $NTGR $AEP http://t.co/Vtx6dLy…
J.
25 Oct 14 03:03:48
RT @StockSignaling: Earnings Surprises: $MDP $WOOF $DECK $ZMH $IMAX $CERN $AB $DLX $GHL $LOGM $EQM $AMX $GMT $NTGR $AEP http://t.co/Vtx6dLy…
BP Radigan
25 Oct 14 03:01:29
RT @StockSignaling: Earnings Surprises: $MDP $WOOF $DECK $ZMH $IMAX $CERN $AB $DLX $GHL $LOGM $EQM $AMX $GMT $NTGR $AEP http://t.co/Vtx6dLy…
Stock Signaling
25 Oct 14 03:01:14
Earnings Surprises: $MDP $WOOF $DECK $ZMH $IMAX $CERN $AB $DLX $GHL $LOGM $EQM $AMX $GMT $NTGR $AEP http://t.co/Vtx6dLy0Nw #markets #trader
Investor Wand
25 Oct 14 02:02:59
New recommendation from Jason Wittes of Brean Murray, Carret & Co. for $ZMH is BUY.Price target is $150:http://t.co/bluKCFVrik
wininstocks2014
24 Oct 14 19:40:54
ZMH 105.29 Stock Charts $ZMH Zimmer Holdings Inc. (NYSE) Last Updated: 10/24/2014 21:40:53 ZMH Stock Chart - 1 http://t.co/K7LL6TJOTk
Julie
24 Oct 14 16:04:43
RT @StockSignaling: After Hours Price Advances: $INVN $DECK $KTOS $MRK $SWN $ZMH $ELNK $BWLD $VALE $IPI $ARO $WEC $CY $FLR $SODA http://t.c…
David (no relation)
24 Oct 14 16:03:13
RT @StockSignaling: After Hours Price Advances: $INVN $DECK $KTOS $MRK $SWN $ZMH $ELNK $BWLD $VALE $IPI $ARO $WEC $CY $FLR $SODA http://t.c…
Dave
24 Oct 14 16:01:36
RT @StockSignaling: After Hours Price Advances: $INVN $DECK $KTOS $MRK $SWN $ZMH $ELNK $BWLD $VALE $IPI $ARO $WEC $CY $FLR $SODA http://t.c…
Stock Signaling
24 Oct 14 16:01:18
After Hours Price Advances: $INVN $DECK $KTOS $MRK $SWN $ZMH $ELNK $BWLD $VALE $IPI $ARO $WEC $CY $FLR $SODA http://t.co/Vtx6dLy0Nw #finance
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Stock Relay
24 Oct 14 11:04:11
wininstocks2014: Stock Charts: ZMH 104.76 Stock Charts $ZMH Zimmer Holdings Inc. http://t.co/i2ll5aKDRD
wininstocks2014
24 Oct 14 11:00:02
ZMH 104.76 Stock Charts $ZMH Zimmer Holdings Inc. (NYSE) Last Updated: 10/24/2014 13:00:04 ZMH Stock Chart - 1 http://t.co/uXpBxXQrs3
Estimize
24 Oct 14 09:34:04
@macol30 The WS consensus for $ZMH Q4 2014 has shifted significantly downwards - http://t.co/o0rsuALqeq
Estimize
24 Oct 14 09:34:01
@TrembFredrick The WS consensus for $ZMH Q4 2014 has shifted significantly downwards - http://t.co/o0rsuALqeq
HotKeyTrading
24 Oct 14 07:00:08
Gap Ups: $ZMH $CHKP $BC $MKSI $PLCM $DAN $EEFT $MMM $LGND $ORLY $TSCO $PFE $WAGE $TMH $CRS http://t.co/Vv2VEn80mr #nasdaq #spy #investors
Barry Schwartz
24 Oct 14 06:58:37
Demand for replacement hips and knees should grow by 6% a year for at least 10 years. Will there be enough orthopedic surgeons? $ZMH
WKRB News
24 Oct 14 06:04:41
Zimmer Holdings $ZMH Posts Quarterly Results http://t.co/M0vZ5hAyuE
WKRB News
24 Oct 14 04:50:33
Zimmer Holdings PT Raised to $150.00 $ZMH http://t.co/15HlNB51Ln
$Stocknewsalerts
24 Oct 14 03:16:23
$ZMH New SEC Document(s) for Zimmer Holdings, Inc. From our Stock News Alerts App
WKRB News
24 Oct 14 02:39:19
Zimmer Holdings Shares Gap Up After Analyst Upgrade $ZMH http://t.co/puSU6c3uE4
UpshotFund
23 Oct 14 23:40:05
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Carmen Hill
23 Oct 14 22:01:12
$ZMH has up-to-date 104 day median price: http://t.co/biZ1eenPMT
KarateBoy
23 Oct 14 21:22:37
@hedgefundinvest I've got a few short ideas. Some live and some working theories: $MIDD $SFM $WU $SIX $CLH $BRCM $ZMH
wininstocks2014
23 Oct 14 17:47:27
ZMH 104.57 Stock Charts $ZMH Zimmer Holdings Inc. (NYSE) Last Updated: 10/23/2014 19:47:27 ZMH Stock Chart - 1 http://t.co/uu9yfGGnRC
wininstocks2014
23 Oct 14 17:46:57
ZMH 104.57 Stock Charts $ZMH Zimmer Holdings Inc. (NYSE) Last Updated: 10/23/2014 19:46:57 ZMH Stock Chart - 1 http://t.co/CCq15iG7iv
Sleek Money
23 Oct 14 14:52:42
Zimmer Holdings Shares Gap Up After Analyst Upgrade $ZMH http://t.co/TmzkNRaeuA
US Banking News
23 Oct 14 14:51:58
Zimmer Holdings Shares Gap Up After Analyst Upgrade $ZMH http://t.co/snm5GaIiJV
StockCharts.com
23 Oct 14 13:06:28
Today's Top 5 Technical Gainers among Large Cap Stocks: $TSCO, $KMX, $CRM, $ZMH, $PH http://t.co/4oNcDpdBxH #sccrankings #stockcharts
WallStreetConsensus
23 Oct 14 12:10:55
PT Chg 10/23: $LGND, $BDBD, $YELP, $NBR, $ZMH, $WRLD, $NDRO, $DDD, $EGHT, $DOW, $SKX, $BEAV, $FOSL http://t.co/gILpZWiqTt
Ticker Report
23 Oct 14 09:44:06
Zimmer Holdings, Inc. $ZMH Issues FY14 Earnings Guidance http://t.co/EfoMyPVmaw
US Banking News
23 Oct 14 09:33:22
Zimmer Holdings, Inc. $ZMH Releases FY14 Earnings Guidance http://t.co/XCMr6vH9rd
Точка Входа.Трейдинг
23 Oct 14 09:28:50
$ZMH long 104.61
Sleek Money
23 Oct 14 09:21:15
Zimmer Holdings Price Target Raised to $150.00 $ZMH http://t.co/87n41WSsNn
US Consumer News
23 Oct 14 09:19:30
Zimmer Holdings's PT raised by Brean Capital to $150.00. buy rating. http://t.co/kJWYICaKBe $ZMH #ZMH
InterCooler
23 Oct 14 09:18:27
Brean Capital Increases Zimmer Holdings Price Target to $150.00 $ZMH http://t.co/wqWSwO5Saz
Analyst Ratings
23 Oct 14 09:13:38
Zimmer Holdings's PT raised by Brean Capital to $150.00. buy rating. http://t.co/0O9N05Pphf $ZMH #ZMH
US Banking News
23 Oct 14 09:12:20
Brean Capital Raises Zimmer Holdings Price Target to $150.00 $ZMH http://t.co/gnFEzgefiR
12Stocks.com
23 Oct 14 08:52:33
S&P500 #Stocks Performance $TSCO $DO $ORLY $PH $KMX $MMM $LRCX $CAT $FTI $LEG $NFX $UNP $STX $ZMH $ALXN more@ http://t.co/RPeaHBZz9y
Peter Coffaro
23 Oct 14 08:18:53
Zimmer posts Q3 earnings above expectations, narrows guidance http://t.co/nmeVdM2FAh $ZMH #medicaldevices #orthopedics #earnings #wallstreet
The Fly
23 Oct 14 08:13:59
$ZMH Zimmer price target raised to $150 from $125 at Brean Capital: Full Story http://t.co/QbGKgPnOnt
Derald Muniz
23 Oct 14 07:54:39
$ZMH is hanging out near this Decl Trend-line now after the post-Earnings pop http://t.co/XQepgqHZOk
NASDAQ
23 Oct 14 06:52:26
$ZMH - U.S. Hot Stocks: Hot Stocks to Watch http://t.co/CvlFWY2zJS
InterCooler
23 Oct 14 06:18:26
Zimmer Holdings $ZMH Announces Quarterly Results http://t.co/FyRDjiSyhm
Large Void Bot
23 Oct 14 06:00:17
Popular: $AAL, $DPS, $CAB, $GM, $KKR, $USG, $CWEI, $OSIS, $ALK, $ZMH, $XLE, $UAL, $SLAB, $AVT
US Banking News
23 Oct 14 05:56:45
Zimmer Holdings, Inc. updates FY14 guidance to $6.05 EPS. http://t.co/KkhNwHtJ3W $ZMH #ZMH
FirstWord MedTech
23 Oct 14 05:41:23
Zimmer posts rise in third-quarter sales, profit http://t.co/Qg6pO2WT5w $ZMH #medtech #meddevice
Day Trade Alerts
23 Oct 14 05:40:24
RT @Estimize: Great work by BC who takes the win for $ZMH beating 6 other analysts and the Wall Street Consensus - http://t.co/V2ssP97ZPT
				
				
By  +Follow July 22, 2013 12:37PM
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