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Hi there, I find it difficult to understand when to exit a trade. From what I've gathered so far, when to exit will vary depending on whether it's a swing or a scalp as well as each individual's style and approach. One should certainly exit if the premise on which the trade is based no longer holds. I was practising using replay trading and took a short trade as shown in the pictures above (in the first image the yellow circle indicates the trade location within the wider market context. The second image shows the details of the trade itself). After initially moving into profit, the market reversed and continued all the way back up to stop me out.
At the time, my thoughts went something like this:
Bar 8: That's a pretty strong bull bar
Bar 9 & 10: That's a worryingly strong reversal up and my trade is now in the red. However, there' still a gap to the BO point and I'm swing trading so I should hold through pullbacks. Although it's a strong leg up, it's about a 50% pullback which is not unusual (I've now measured it and it WAS more than 50% actually).
Bar 11: Ah, thankfully a bear bar. Ok, looks ok.
Bar 12: Disappointing, another bull bar. The first leg up was strong enough to have a second leg. Perhaps it will be small and mostly sideways to the MA and then we'll get a move back down to test the low. Also, bar 11 and bar 12 are almost an ii and they can be good reversal signs.
Bar 13: Ok, that's closed at the MA, perhaps we'll now get that leg down.
Bar 14 & onwards: Damn...this could just keep going up. Still, Al has said a few times that the worst place to exit a losing trade is in the middle zone. It's best to either cut a losing trade quickly or rely on your stop. I've missed the early exit so I'm going to have to rely on my stop...
Having reviewed and considered it again, my thoughts are now:
- The pullback to bar 10 looks really strong. It's a 4 bar micro channel with hardly any wicks and it has closed above the previous high caused by the pause between the two legs on the way down. Is this enough to get out of the trade? It was probably only a minor high so may be ok to hold. There's still a gap between bar 10 and the BO point. However, this is a warning that the bulls are pretty strong so should look to get out sooner rather than later.
- Bar 11 is not the strongest bear bar but not the worst. However we are still in a bull micro channel so need good FT for the bears.
- Bar 12 represents very disappointing FT after bar 11. Also did not even go below the low of bar 11. This might be time to get out. Would be a relatively small loss. However, even though it's a bull bar, sets up a possible L1 down from the moving average. And we haven't touched the MA yet in this downtrend.
- Bar 13 again went straight up and continues the micro channel. It's another strong bull bar and has actually closed above bar 10. Starting to look more like a bull trend than a bear flag. If I'm going to take an "early exit" then this may be the last chance to do it.
As you can see, I'm STILL not really clear on where I should exit even if the same thing were to happen tomorrow. But in summary, I think the key observations that could indicate it's best to exit the trade early for a loss and WHERE to do that are:
1. The initial leg up is strong with virtually no wicks.
2. It closes above the previous leg down.
3. The attempt to reverse back down is very weak and continues the bull micro channel.
4. This suggests exiting after the close of bar 12 or bar 13 if not going to rely on stop.
What would you do? Would appreciate any thoughts and advice, either about when to exit or even the overall wisdom of the trade itself.
Oh, fyi, the bar numbering is something I just added in to talk about the trade. The trading day did not start with bar 1, it started at the top of the chart near the top of the yellow circle.
Thanks for reading.
imo you entered into a sell climax. late leg. far from the EMA. Exit above b9 and wait for a L2 at the EMA.
Thanks Samir. Yes, I did think it could be a sell climax of the leg down rather than a new BO. I guess with that in mind, like you say, I should have been ready to exit quickly.
Hy,
here i made my point of view, like above im thinking the same you sold in an oversold market. And you entered to late. i do not know what your profit target might be a MM from the spike B1 down? or lower?
I would have exited above B12 or B13. Correct me if im wrong but B11+B12 isnt a ii pattern, B11 was a bear inside bar and B12 was a bull bar who traded abobe B11, so this might be a lower DT sell signal but B12 was a weak sell signal bar, a reversal down isnt likely, B12 is a L2 sell SB, this one failed with B13, the pullback if you see it as a pullback failed.
If you instead see the reversal as a new trend, B11 was a H1 buy SB and the B12 was a H2 buy SB. The H2 suceed with B13 so the Bull trend might continue in form of a channel and some MM up or at least three pushes.
B13 was an important bar for the switch in my opinion, if you think the way like you did it.
Al always says but you stop above the most recent swing high, in your example. I would say this is 12 bars before B1, if you had but your SL there, you were able to hold it through the Big Leg (PB) up and quit with a smaller loss, on the low of the bear channel down from B20.
One good entry might have been the bar before bar one, if you sold one tick under this bar you would have bet for a failed wedge bottom reversal. The often have a MM down in height from the wedge. This MM could have been your profit target.
Best regards
Thanks for your comments, really helpful!
