Exit strategy

[Ares]

Eversince I started trading, I have been having difficulty with my exit.

Most of the time, after I enter a trade, in few minutes I'm at a plus (especially when using the going in with momentum strategy).

However, the moment I reach my goal and the price goes above it, I tend to hold and not sell - just to see the price hit my protective stop later and exit at a loss.

My ideal risk:reward ratio for stocks below $10 is:

For 1,000 shares
risk = 10
reward = 25

For 500 shares
risk = 20
reward = 50

On entry using going in with momentum, I usually initiate an exit when the price opens and closes below the  15 minute ma.
However, sometimes, I find that I'm giving back too much of the profit back to the market with this strategy.

The most recent exit strategy that I would like to practice on is to have a 10 cents protective stop right after entry and trail the swing highs with 10 cents too.

I'm looking for ideas on how to exit at the highest possible price.

Looking forward to see your strategies and comments.

[ScottishTrader]

Hey Ares,

I also have real trouble with this, and its such a pain to see wha was (sometimes even a matter of minutes beforehand) a nice profit dwindle away.  My best suggestion (whcih I never follow, but should), particularly for momentum trades, is if you have a target based on a technical read of the chart action, set a limit order for half at or just below your target when you enter the trade.  Quite often, if you have read the pattern right, stocks will hit these targets but maybe only a few trades will go off at these prices, too quick for you to actually enter the sell order and get your price.  With the other half, you can let it ride (and I normally raise my stop on that to protect half my current gains, or to just below the last pullback on whatever time frame you are trading on).  Using moving average crossovers can work too, but the point is that often by the time you have entered your order, the move is often on its way

I think the important point is that especially for short term trading, it is not necessarily about getting the most out of a particular trade that you can (although we want to and this is the psychology that makes us hold on), it is about calculating targets for setups, and risk:reward ratios, planning the trade and then trading that plan.  Easier said than done, I know, but if you have the discipline to do so and the risk:reward ratios are right, then you should make money.

Have a look at Brian Shannon's video blog site, Alphatrends:
http://www.alphatrends.blogspot.com/  He posts daily short term setups just like this (as well as overall market commentary - very useful) - sometimes they work out, sometimes they don't but he is pretty rigorous about his entries and exits, and it may be worth paper trading along with some of his trades to see how they work out.

Anyway, I know you are endeavouring to develop a good short term/daytrading methodology, which I think is one of the hardest things you can do in trading.  I've been trading pretty short term for the last few months and I find it very difficult to stay disciplined and on top of it.  I'd be interested to read more about your strategy (I have read some of your posts, but don't know about RSI(2) etc.  not in my technical playbook).  It may well be that simplicity and patience are the best tools in your arsenal (unfortunately I seem to be lacking in both....)


ST