Exit Strategies for Trading Positions
Highlighting Key Exit Strategies to Boost Your Trading Positions
In trading, an exit refers to the act of closing a trade or position in the financial markets. It is the opposite of the entry, which is when a trader opens a position. Exiting a trade is an essential part of trading strategies and is crucial for managing risk and realizing profits or losses.
Trading Exits
When you enter into a trading position, you will have to eventually exit it at some point in time. Exit techniques are numerous and you have to choose the one that fits your profile but also the one that provides the best risk-reward profile. Below are a few ways to exit your position.
1/ The Moving Average Exit
Moving averages can also be used as exit indicators. The following list shows a few examples:
Buying whenever the MACD shapes a bullish divergence and exiting whenever the market breaks its 20-day moving average.
Selling short whenever the MACD shapes a bearish divergence and exiting whenever the market surpasses its 20-day moving average.
Take a look at the following chart to understand more the technique.
2/ The High-Low Conditional Exit
This exit strategy uses the extremes of the time period. The following list shows a few examples:
Buying whenever the CCI is at a support level and exiting whenever the market closes higher than the high from 5 periods ago.
Selling short whenever the MFI is at a resistance level and exiting whenever the market closes lower than the low from 5 periods ago.
Take a look at the following chart to understand more the technique.
3/ The Time Exit
This exit strategy is price-independent as it assumes a time perspective. An example would be to close the trading position after a number of time periods following the opening. The following list shows a few examples:
Buying whenever the RSI is at 30 and holding the position for 5 hourly bars.
Selling short whenever the MACD shapes a bearish cross and holding the position for 10 days.
It is worth knowing that the time exit may be variable in the case of getting a contrarian signal while holding an open position before reaching the time target. This would imply closing out of the position before the time condition.
Take a look at the following chart to understand more the technique.
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4/ The ATRÂ Exit
The average true range (ATR) is a volatility indicator that calculates the most recent average fluctuations of the price, while taking into account the lows and the highs. Higher ATR readings mean higher volatility while lower ATR readings mean lower volatility.
The following list shows a few examples:
Buying whenever the stochastic oscillator shapes a bullish divergence and exiting whenever the market reaches 2x multiples of the ATR value at the open price added to the open price.
Selling short whenever the market pauses from its long-term moving average and exiting whenever it reaches 3x multiples of the ATR value at the open price subtracted from the open price.
Take a look at the following chart to understand more the technique.
5/ The Technical Indicator Exit
This technique assumes exiting the position whenever there is a contrarian signal from a technical indicator. The following list shows a few examples:
Buying whenever the market shapes a bullish configuration/pattern and exiting whenever the RSI reaches 70.
Selling short whenever the market shapes a bearish configuration/pattern and exiting whenever the RSI reaches 30.
Take a look at the following chart to understand more the technique.
6/ The Pattern Exit
This technique assumes exiting the position whenever there is a pattern you like that invalidates the current direction of your trade. The following list shows a few examples:
Buying whenever the market holds above the current support zone and exiting whenever a bearish Doji pattern appears.
Selling short whenever the market holds below the current resistance zone and exiting whenever a bullish Engulfing pattern appears.
Take a look at the following chart to understand more the technique.
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