Exit a Trade and Make a Profit

First there is no such thing as a perfect exit strategy. But you can use quantified exit strategies that allow you to exit into strength on the long positions and cover into weakness on the short positions as many people did in the Daily Battle Plan Tuesday afternoon.

The two exits people like best, and which also test the best, are the cross above/below the 5 period ma exit and the 2 period RSI above 70 (under 30 for short positions) exit. Each is covered in further depth Short Term Trading Strategies

If you use a 5 period ma exit, you can just as easily use a 3 day, 4 day, 6 day, and 7 day ma exit. The shorter ma exit will likely have a higher percent correct than the 5 period but the average gain per trade will likely be lower (you're often getting out too soon).

The longer period ma exit will likely give you a higher average gain per trade but the percent correct will likely be lower (you're in the trade longer exposing yourself to more risk). The same principles hold true for the RSI exits. How you look at your trading will dictate which exit time frame you're most comfortable with.

There are other good exits. For example, the first up close exit, shows surprising good test results and is a very interesting concept. The key to all this is to choose the exit that provides you with the best statistical evidence and which makes you most comfortable. Then stay as disciplined as possible and stick with it.

The exits mentioned above are all excellent and again there is no such thing as the perfect exit for every trade. Most trades will move further after you exited and a few may get close to exiting at the high or low (but this doesn't happen often enough!).

The key to properly exiting a position is to find that sweet spot which has historically been the best place to exit short term trades. Based upon the test results on over 8 million trades, the 5 ma and the 2 period RSI rank amongst the best at doing this. I hope this helps guide you with your exits. Many people like to tell all of us when to get into a trade. But knowing when to get out is just as important.


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