You must have exit strategies in order to exit your trades at the right place and right time. As we all know, money is always made at the exit, not at the entries; hence exit strategies are important and must be followed in order to exit the trades sensibly.
There are a few things to consider if you want to exit deals wisely. Since your exits in trading are more important than your entries are, you should always have logical and established exit strategies for doing so. I have a question I’d like to ask you before we continue. How many times have you entered a trade, it moved in your favour up to a certain point, you felt good about the trade, and then it retracted, turning your green PnL into a red colour? After this, you panicked and exited that trade at a loss or at breakeven, and after your exit, that trade went in your direction and hit the target.
I know many of you might have experienced this situation, and to avoid these instances, you need well-defined exit strategies, which we will discuss in this blog.
This is the most fundamental yet crucial trading guideline. Many novice traders attempt to increase their losses by adjusting their stop-loss when a trade goes against them. This is a trade error.
Think carefully about your stop loss and position sizing before putting an entry into the trade. Once you do, change your stop loss in the direction of your trade, never the opposite; this is called trailing the stop loss in the right direction. Even though you might assume throughout that procedure that the trade will reverse and that I should slightly move my stop loss against the trade, don’t even bother to consider it. This is one of the most common mistakes many traders commit.
This is one of the most sensible exit strategies in trading. Let’s say, for example, you have taken a trade with risk to reward ratio of 1:3; once you take the trade and that trade goes into your favour by some point and let’s say you achieve 1:1 risk-to-reward ratio after taking that trade in some time the moment you hit the 1:1 risk to reward ratio you can trail your stop loss to breakeven so that you will not lose money on that particular trade. Similarly, when you hit 1:2 risk to reward, you can trail your stop loss further and secure 1/3rd of profit.
This is how you can exit your trades sensibly using risk-to-reward ratios.
It is always important to secure your profits when markets are in your favour, and to do that; the moving average is the best indicator.
Many traders use moving averages in order to trail their stop-loss. There is no specific moving average to trail your stop loss. Different traders use different moving averages as some traders use 9EMA, some traders use 10 EMA and so on.
It depends upon your comfort level and your backtesting, which moving average you can use as a trailing stop-loss. Once the price closes below that specified moving average, you can cut your trade and secure profits. This is how moving average exit strategies work.
So these are some of the most effective exit strategies you can use in your trading to sensibly trail the stop-loss. Don’t forget to share us across all your social media handles if you like this article.
If you want to know more about Intraday Trading Strategies you can refer to our previous blog on 10 Best Intraday Trading Strategies.
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That’s great! I may add that Time Stop is equally well one of the top exit strategies when the stock does not move as per our expectations or suffers with consolidation phase.
Thx a lot for valuable guidance.
Some important for me like
-change your stop loss in the direction of your trade, never the opposite.
-you achieve a 1:1 risk-to-reward ratio after taking that trade in some time the moment you hit the 1:1 risk-to-reward ratio you can trail your stop loss to breakeven so that you will not lose money on that particular trade.
-when you hit 1:2 risk to reward, you can trail your stop loss further and secure 1/3rd of profit.
-I am using stochastic RSI swing and pivot points for trial.