Let’s talk about trade exit strategies. Many times, we see traders focusing on the entry portion of the trade: the “buy here” part, rather than the trade’s target and exit portion. For most individuals, entry is the “success/fail” of the entire trade. It is a very emotional time for many and a time for celebration or regret.
New and intermediate traders often see the entry as the most crucial aspect of trading, for it has the “Go” (hope) and the “Stop” (loss) portion of the trade. So until there is an entry, there is no trade, right?
Well, entry is indeed very important, but the targeting and exiting of the trade can be even more critical to a person’s overall profits, emotions, and comfort with trading. A trading plan must be consistent and complete; without a thought-out trade exit strategy, completeness is impossible.
Trade Exit Strategy: Where to Target Or Exit?
With the Pinnacle Method approach to targeting, one always starts with Fair Value (or the location of all the already filled orders). How a member uses Fair Value to determine targets and managing of the trade can vary considerably, and for good reasons.
Below are some examples of Fair Value showing different timeframes on the same security (Thick lines are 420 min zones, and thin lines are 15 minute zones). Each of these targeting techniques could be included in the trading plan, but each may have different reasons for use. Let me explain.
If a trading plan is looking for a high probability of hitting a target, it may be that you use a target closer to the entry price or within Fair Value. See (Diagram A) below:
This trade exit strategy is not against the rules of the Pinnacle Method. You still use the higher probability entry but have a plan that exits the trade quickly, which is just fine with you and your trading plan. (Note: Increasing position size is also an option here if you wish.)
Another approach is that you may have a trade plan with your target at 80% or 100% of the traversing Fair Value. See (Diagram B) below.
The trade exit strategy is based on waiting and expecting full return through the range or Fair Value. Many of our members use this trade exit strategy to get significant returns per trade when successful.
It may take more time to reach the target and, of course, will have a lower success rate than quick targeting, as in the previous example. (Note: Not watching trades is often necessary for this one; which is a skill also worth gaining).
Another trade exit strategy is giving the trade even more room. For example, if you’re taking a longer-term trade with perhaps a trailing stop as the trade looks like it will likely break supply and/or move to an ATH or beyond. This can be seen in (Diagram C) below.
In this case, the member is managing the trade by moving stops and potentially adding (temporary or permanent) hedges to allow the trade to continue in a specific direction over longer periods of time.
Finally, another possibility is to combine all three of the above approaches. This would involve using multiple contracts or more shares of stock, as seen in (Diagram D) below:
A short target – to declare some victory, a longer target – which is the core trade target, and some form of a “runner” to take the target to a more distant price.
Think About Your Trade Exit Strategy
All of these trade exit strategies are used by traders in different market conditions, location conditions, member time constraints, etc. Therefore, choosing a target is an individual choice based on the comfort level and expectations of the trader.
When one of our members asks, “what’s your target?” in a session, it doesn’t regularly get a direct answer. That’s because there are many factors. Your target and trade exit strategy is much more flexible than meets-the-eye. It is always dependent on the trade plan of the individual, the specific security location, and the overall market conditions to allow that security to reach the target proposed (just to name a few).
It should be difficult as it is where the profit truly is. Whether that profit is short-term or long-term, the exit is where profit is confirmed or settled.
Simple? No, but anything that makes profit never is. However, it can be “easier” when you have a plan that suits you, and it is most important to have a ” targeted ” plan. (See what I did there?)