- You must always have exit strategies in order to exit your trades at the right place and at the right time.
- We all know that money is always made at the exit and not at the entry; hence, it is very important to exit trades.
- For this, proper exit strategies should be followed to exit trades sensibly.
- There are a few things that you wish to consider if you want to exit the trades wisely.
- Your exits in trading are more important than your entries, so you should always have logical as well as established exit strategies for doing so.
Strategies to exit trades
- There are several strategies that are available for exiting trades sensibly.
- But here in this blog, we will discuss the 3 main strategies that will help you to exit the trades.
The following are the 3 main exit strategies that will help you to exit the trades sensibly:
Exit strategies based on trailing stop losses
- This is the most fundamental as well as the most crucial trading guideline.
- Many novice traders are attempting to increase their losses by adjusting their stop loss when a trade will go against them.
- This is called a trade error.
- You should think carefully about your stop loss and position sizing before putting an entry into the trade.
- Once you do this, you can change your stop loss in the direction of your trade and never the opposite.
- This is called the trailing stop loss in the right direction.
- Even though you will assume that throughout the procedure the trade will reverse and that you should slightly move the stop loss, then you should not bother to consider the same.
- This is one of the most common mistakes that every trader will commit.
Exit strategies based on risk-to-reward ratios
- This one is one of the most sensible exit strategies in trading.
- For example, you have taken a trade with the risk-to-reward ratio of 1:3.
- Once you take that trade and it goes into your favor by some point, and let’s say that you achieve a 1:1 risk-to-reward ratio, then you can trail your stop loss to the breakeven.
- By doing this, you will not even lose any money on any particular trade.
- Similarly, when you hit the 1:2 risk-to-reward, then you can trail your stop loss further and secure 1/3rd of the profit.
Exit strategies based on moving averages
- It is very important to secure your profits when the markets are in your favor.
- But to do that, the moving average should be considered as the best indicator.
- Many of the traders are using the moving average in order to trail the stop loss.
- There is no such specific moving average that will trail your stop loss.
- Different traders are using different moving averages because there are some of the traders that use 9 EMA whereas some of the traders will use 10 EMA, and so is the case.
- It will also depend upon your comfort level as well as your back testing, which will decide which of the trailing stop-losses that you can use.
- Once the price will close below that specified moving average, then you will be able to cut your trades and then secure profits.
- This is how the moving average exit strategies work.
Conclusion
The most effective as well as the most sensitive exit strategy for your trade is the use of the trailing stop loss.
Frequently Asked Questions (FAQs)
Q1) What is the best exit strategy for trading?
Popular exit strategy will include stop-loss orders to limit the losses.
Q2) What is the exit strategy in the crypto bull market?
Selling your holdings when a specific percentage is achieved is the best exit strategy in the crypto bull market.
Q3) What is the simplest exit strategy?
Liquidation is the simplest exit strategy.
Q4) What is the most bullish option strategy?
Buying a call option is the most bullish option strategy.
Q5) When to exit a winning trade?
When the trend starts to reverse is the best way to exit the winning trade.
About Us
Nifty Trading Academy is our academy where we teach you about the stock market as well as technical analysis. We also provide live market trading as well as live market support in the class and upload blogs for the same.