Exits, Stops And Strategy by Jeffrey Owen Katz, Ph.D., and Donna L. McCormick
Everyone's looking for entry trading signals, but what about after you're in the trade? Here are different techniques for making a graceful — and profitable — exit.
Previously, we focused for the most part on the timing of trading entries. We examined how useful various factors and methodologies were in helping us de-cide
when and where to enter a trade. We tested everything from cycles to sunspot activity, from simple rule-based approaches to advanced genetic algorithms and neural networks. We kept our exit strategies simple and fairly constant across all tests so that a reasonably fair comparison of entry methods could be made. In general, we used a fixed money management stop, sometimes a profit target, and almost always an exit-at-market order after a given number of bars, or days, in the trade. Our focus was on the entry, not the exit.
This time, we will shift our attention to how to get out of a trade — that is, the challenge of the exit strategy, a problem often neglected in trading literature.