Here's an artilce I wrote yesterday on Exit Strategies
Just thought I would discuss some of the various ‘Exit Strategies’ one could use whilst trading the markets intraday. Naturally, there are probably too many to list but here are a few that come to mind.
Firstly there are a few classic methods that have stood the test of time. These might seem outdated considering all the fancy indicators and software on the market these days but they definitely have their merits when to it comes to exit strategies.
1) Moving Average
The way I would consider using a moving average as trailing stop is simple. If you looking the chart below you will see 3 simple moving average on a 5 min FTSE Chart. The Blue one is what I call your “expected touch” Ma. This ET Ma is basically a moving average thats consistently gets test and retested in trends. This will be different for every index, futures or market. In this case it is set to a period of 10. You just have to try a few different moving averages on your charts and see which one consistently picks gets touched in strong trends.
After that you use a multiple of that number “to give the price some room”. I have given you two options on the chart; red (20)and green(30). Obviously the tighter one will get hit more often the other not so much. You will have to decide what you need to make your system profitable. Tight, quick exits or slower larger exits. But the really point I am trying to highlight is using a moving average that is a factor of the expected touch moving average.
There are obviously other methods of using moving averages. One of my favourites is moving average envelopes. These can be set to anything you like but I like to use numbers relating to a % of the recent daily range of the particular index. The good thing with these envelops is that they project above and below a moving average so you can use them as target projection and thus a proactive exit strategy.
I don’t think I need to explain it more than that but if you have any questions please feel free to ask.
2) Support/Resistance
No need for a chart. This is as simple as it gets…higher lows and lower highs. In an uptrend draw a horizontal line at the low and any time you get a dip followed by a new high, raise or redraw the line at the low of the dip. Obviously, you to the opposite for down trends. You are looking to out your line at the peaks of the lower highs. Great for longer swing trades.
Can even be used on a candle by candle basis in scalping. You can use line charts and only take a close of a bar/candle period above the previous high or low as a signal or you can just trade absolute price high & lows of a bar/candle.
Simple but effective in my opinion.
3) Volume Spikes
I am by no means a knowledgeable person when it comes to using
volume on charts. The main reason being that I never really saw and pattern in contract volumes on index futures apart from one thing…the volume spike. These spikes often mark the end of a move and the start of something new. There are a few reasons why these spike occur but as a technical trader I am not too bothered why they do.
The benefit with volume is that it’s a real time event rather than a lagging indicator. But don’t forget you still have to interpret it yourself and I think it’s good but maybe only as a pre warning system to exit. So once you see a volume spike you start to move your stops closer. Possibly using the the higher/low support/resistance concept.
4) Parabolic Stop and Reverse
This was built for use as trailing stop. Have a look for other articles done on the site about SARs. If you take a look around various trading forums you will see there are a few paint bar indicators which look quite good. More often than not it contains some element of Parabolic Stop and Reverse in it.
Image Removed due to limited number per posts
You will have to play around with the settings for various markets and time frames. Do not use it as an entry is my only warning. Choppy markets will kill your accounts with an indicator like Sars used to open and close positions.
5) SuperTrend
Now we are moving away from the classic indicators and towards more modern ones. Supertrend is a great indicator for marking trends which makes it another great trailing stop exit strategy.
Not much more really to say about it. It is one of my favourite indicators and I will be doing some articles on the SuperTrend indicator in the near future.
There are many different versions coded out there on the internet for you to find. We have quite a few of them in our indicator section should you need to download them for free.
6) TTM Trend Or Heiken Ashi
Below is the TTM trend indicator that we have in one of our indicator sections. In all honestly you could use a host of different paint bar indicators and they would look very similar. Again this indicator is not a target projection but more a trailing stop. You simply close your position when the bars change from the trend colour to the opposite colour.
7) Indicators based on Carter’s BB/TTM Squeeze
I say based on as I have no way of knowing how closely the codes of these indicators match that of Carter’s indicators. Regardless of that issue the main idea I want to address is not the actual indicator. It’s the idea that Carter mentions on his website about waiting for two consecutive declining bars on the histogram to exit a position. This can be done with any histogram in fact. Macd histogram is quite a good one to.
Image removed due to limit per posts
Simply decide how many declining bars you are willing to wait for the trend to resume and use that as your exit signal. Sometimes it will be on a pull back but in the case if carters BB/TTM Squeeze indicator it can often happen close to the low/high of the move as it’s based on momentum which can decline before the actual low/high is in place.
As you can there are plenty of different ways to exit a trade and these are only a dip in the ocean. Hopefully these will be of use to some of you guys, especially the newer trader who has all the great ideas of how to get into a trader but finds it hard to stay disciplined when exiting a position.
Just thought I would discuss some of the various ‘Exit Strategies’ one could use whilst trading the markets intraday. Naturally, there are probably too many to list but here are a few that come to mind.
Firstly there are a few classic methods that have stood the test of time. These might seem outdated considering all the fancy indicators and software on the market these days but they definitely have their merits when to it comes to exit strategies.
1) Moving Average
The way I would consider using a moving average as trailing stop is simple. If you looking the chart below you will see 3 simple moving average on a 5 min FTSE Chart. The Blue one is what I call your “expected touch” Ma. This ET Ma is basically a moving average thats consistently gets test and retested in trends. This will be different for every index, futures or market. In this case it is set to a period of 10. You just have to try a few different moving averages on your charts and see which one consistently picks gets touched in strong trends.
After that you use a multiple of that number “to give the price some room”. I have given you two options on the chart; red (20)and green(30). Obviously the tighter one will get hit more often the other not so much. You will have to decide what you need to make your system profitable. Tight, quick exits or slower larger exits. But the really point I am trying to highlight is using a moving average that is a factor of the expected touch moving average.
There are obviously other methods of using moving averages. One of my favourites is moving average envelopes. These can be set to anything you like but I like to use numbers relating to a % of the recent daily range of the particular index. The good thing with these envelops is that they project above and below a moving average so you can use them as target projection and thus a proactive exit strategy.
I don’t think I need to explain it more than that but if you have any questions please feel free to ask.
2) Support/Resistance
No need for a chart. This is as simple as it gets…higher lows and lower highs. In an uptrend draw a horizontal line at the low and any time you get a dip followed by a new high, raise or redraw the line at the low of the dip. Obviously, you to the opposite for down trends. You are looking to out your line at the peaks of the lower highs. Great for longer swing trades.
Can even be used on a candle by candle basis in scalping. You can use line charts and only take a close of a bar/candle period above the previous high or low as a signal or you can just trade absolute price high & lows of a bar/candle.
Simple but effective in my opinion.
3) Volume Spikes
I am by no means a knowledgeable person when it comes to using
volume on charts. The main reason being that I never really saw and pattern in contract volumes on index futures apart from one thing…the volume spike. These spikes often mark the end of a move and the start of something new. There are a few reasons why these spike occur but as a technical trader I am not too bothered why they do.
The benefit with volume is that it’s a real time event rather than a lagging indicator. But don’t forget you still have to interpret it yourself and I think it’s good but maybe only as a pre warning system to exit. So once you see a volume spike you start to move your stops closer. Possibly using the the higher/low support/resistance concept.
4) Parabolic Stop and Reverse
This was built for use as trailing stop. Have a look for other articles done on the site about SARs. If you take a look around various trading forums you will see there are a few paint bar indicators which look quite good. More often than not it contains some element of Parabolic Stop and Reverse in it.
Image Removed due to limited number per posts
You will have to play around with the settings for various markets and time frames. Do not use it as an entry is my only warning. Choppy markets will kill your accounts with an indicator like Sars used to open and close positions.
5) SuperTrend
Now we are moving away from the classic indicators and towards more modern ones. Supertrend is a great indicator for marking trends which makes it another great trailing stop exit strategy.
Not much more really to say about it. It is one of my favourite indicators and I will be doing some articles on the SuperTrend indicator in the near future.
There are many different versions coded out there on the internet for you to find. We have quite a few of them in our indicator section should you need to download them for free.
6) TTM Trend Or Heiken Ashi
Below is the TTM trend indicator that we have in one of our indicator sections. In all honestly you could use a host of different paint bar indicators and they would look very similar. Again this indicator is not a target projection but more a trailing stop. You simply close your position when the bars change from the trend colour to the opposite colour.
7) Indicators based on Carter’s BB/TTM Squeeze
I say based on as I have no way of knowing how closely the codes of these indicators match that of Carter’s indicators. Regardless of that issue the main idea I want to address is not the actual indicator. It’s the idea that Carter mentions on his website about waiting for two consecutive declining bars on the histogram to exit a position. This can be done with any histogram in fact. Macd histogram is quite a good one to.
Image removed due to limit per posts
Simply decide how many declining bars you are willing to wait for the trend to resume and use that as your exit signal. Sometimes it will be on a pull back but in the case if carters BB/TTM Squeeze indicator it can often happen close to the low/high of the move as it’s based on momentum which can decline before the actual low/high is in place.
As you can there are plenty of different ways to exit a trade and these are only a dip in the ocean. Hopefully these will be of use to some of you guys, especially the newer trader who has all the great ideas of how to get into a trader but finds it hard to stay disciplined when exiting a position.
