TIME TO PROFIT
Let your profits run but they won't run forever so you need to know when to exit your position profitably. To let your profits run, you don't want to set any profit targets or lock in profits by exiting the trend early. Stops are set to protect against a trade that goes against a position, while exits are set to capture the most profit. As we mentioned about stops on the stops page, exits also need a good balance. They need to be tight enough to not give back too much profit. They also need to allow the trend room to move, have small retracements or consolidate so you do not exit your position before the trend is over. If your exit does take you out of the trend too early, make sure your entry criteria will allow for reentry when the trend resumes.
Using an exit such as a trailing exit that continues with your position but still gives it room is a common option. You may want to use the same indicator as your entry however test various exits with your chosen entry to find an exit that works best for you. Some example trailing exits include:
- Parabolic SAR that gets closer as the trend continues but triggers when the price reverses. If the price touches or crosses the Parabolic SAR, exit all positions
- Price Channels. In a long position, use the lowest low of the last x number of days as the exit point. In a short position, use the highest high of the last x number of days as the exit point. If the price touches or crosses your price channel exit, exit all positions
- Moving Average. If the price touches or crosses your single moving average or if you use a dual moving average cross, exit all positions
How do you know if a system is any good and will make you money? The next page about expectation or determining the probability of a system.