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Strategies & Market Trends : Technical analysis for shorts & longs -- Ignore unavailable to you. Want to Upgrade?

To: Johnny Canuck who wrote (36016)	1/29/2002 12:51:59 AM
From: Johnny Canuck	Read Replies (2) \| Respond to of 67797

Short Term Trading Exit Strategies AFTER MIDNIGHT Market Commentary by Toni Hansen January 28, 2002 Most traders don't have too much of a problem identifying an entry. They tend to be rather uniform if.. then situations and these patterns are among the easiest to learn. For many, the problem instead comes when it's time to start looking for an exit. It's sometimes amazing to see how few traders have decent exit strategies. So, what I'm going to talk about today is trade management exiting a position. All discussions here will be regarding swingtrade buy setups. Reverse action can be taken in the case of shorts. Types of Exits: A) The initial stop. This is your first potential exit area. It is like an insurance policy and no trade should be entered without it. You always have to have a worst case stop that you will take no matter what. This is what you base your risk on and it keeps you in the game which is always the goal. Show up tomorrow blowing stops, and that's the surest way to go broke. Not fun. Don't do it. In a buy, this worst case stop should be based on a logical area of support and placed right under it. B) A break even stop. This will come into effect at various times depending on the price and volatility of a stock. At this point you should have a worst case scenario of break even where you say, "Ok, I am playing with the market's money. I am no longer at risk and should not take a loss." It's very liberating and promotes free thought in a trade because you can then manage the position without being concerned about taking a loss. C) The trailing stop method. The saying "once a winner, always a winner" is suitable here. Usually a trailing stop will be applied after the break even stop and again you have some room for discretion. There are several main ways to use trailing stops. The first of which is to trail out under major intraday pivots. These could be from today or yesterday. A pivot is a bottoming area. Another option, which works best in a trending market, is to simply trail out under the prior day's low. This allows you to stay in the trade through the first several days, after which you can switch to a tighter trailing stop such as a break in the 15 minute 20 sma or, if the stock is approaching strong daily resistance, a break in the 5 minute 20 sma. D) Next I want to talk about taking partials. In most cases when a stock is at least to my break even stop amount and is coming up on short term resistance, this is when I will start to look for partials to be taken, selling into the resistance. For instance, if I have 600 shares of XYZ at $58.50, when it's up to the whole price resistance of $60 I will go ahead and sell 200 or 300 shares and then move my stop on the rest of the shares to break even. This will insure that, at worst, I take a gain. Not a bad way to play at all. It also allows you to be a little bit more liberal on the trailing stops, just from a psychological standpoint. It also makes it easier to stay in for some long pulls. Ok, next let's look at sellable events. If a sellable event occurs, you will sell regardless of the stop being hit, even if your stop is not hit. The following are a few of the main examples of sellable events. In some cases you may use these sellavle events to exit partials, while in other you may use them to exit the entire position. 1) The first sellable event is when a stock gaps up 2 1/2% or more at the open. The instant this happens you need to sell 1/2 of your remaining shares. Then, wait for a five minute low to be established and if it's broken, kill the rest of the trade. The reason here is that most gaps do in fact fail on a swing setup. So, you need to use the opportunity to exit. The futher along in the swing you are, the more and more likely it becomes the gap will fail. On the gap there will be plenty of amateurs begging you to sell to them. Be nice. Give 'em what they want, you already have it at a better price. That's sellable event 1. 2) If in the last 30 minutes of the day a stock is at or near the day's low, you need to sell. If the stock closes in the lower 1/3 of the day's range, that's usually not a good sign. That shows sellers became active and you are probably sitting on the wrong side of the market at this point. 3) If a stock you are in gaps down more than 1/2 point at the open, then breaks the low it establishes in the first 30 minutes of the day you need to get out, regardless of trailing stops. 4) If a stock is up a good deal all day, then it gets strong selling in the last hour or the day which force it to close under the day's opening price, that is a sign that bad things could be in store for the stock and you should get out. 5) If an exhaustion bar occurs. This means a wide range bar on climactic volume. When you see this, especially after a stock has already been up a few days, this signals a blow off and, more often than not, a correction the next day. 6) The next sellable event would occur if there is climax volume but hardly any move. This is also a sign to us that the stock is liable to break down. 7) Additionally, watch for earnings. Never hold a swingtrade into earnings so make sure you check the earnings calender for a stock before you consider holding it overnight, espeically if it's in earnings season. During this time it's also best to watch for other bit names int he same sector which could affect the stock you are in as well. I hope some of these strategies will help you out as your trading progresses. Many of these strategies can be adjusted for daytrading. Addtionally, don't consider this to be a complete and unchanging list of elements to look for when you exit your swingtrades as it's certainly not everything I will look for. It is, however, a good start. One thing you should always be aware of is the present market environment and adjust accordingly. There will be times you shouldn't bother with trailing stops or taking partials and there are cases where an exhaustion bar can just lead to a continuation move in another day or two. Whether you would hold through the correction for the continuation or not would depend on your objectives and the bigger picture. I would like to say timing an exit is as easy as timing an entry, but experience is the best lesson. Take the above commentary and use it to speed up your own education and adapt the strategies to your own personality and risk parameters. Take care and good trading! hardrightedge.com