You can exit too late and lose some profit because you didn’t lock any gains in.
You can also exit early, missing out on potential gains if you had only let the trade run.
For many traders, it is one of the most frustrating things to see on the charts. This can have knock-on effects with your trading that could result in revenge trading or greed taking over your decision making entirely.
This is one of the best areas you can look toward in order to improve your profitability.
So check out my 5 tips that will help refine your trade exit strategy and leave any comments or questions at the end!
- Maximum Favorable Excursion
- Type of Setup
- Is The Trend Your Friend?
- Placing Strong Support & Resistance
- Recent Price Action!
I know Maximum Favorable Excursion (MFE) sounds like a lot, but it is one of the simplest additions you can make to your trading journal. If you want to see a detailed explanation of MFE I go over it in this article, along with a free journal.
MFE essentially looks at every single trade that you take and tracks how many pips of profit you missed out on.
It is simple, but when you look at this data in relation to specific setups or pairs it gives you a great target to shoot at in order to increase your profits.
This is also another great way to motivate you in keeping up with your trading journal. You really can gain a lot of insight into your trading by looking at your trading data – don’t pass up on it!
This one might be an obvious choice but you will be surprised at how effective this tip really is.
Trade setups are executed under different conditions, and therefore have their own strengths and weaknesses. Understanding what your target profit should be for each trade means working with the strengths of the setup.
So on a reversal trade, you know that extending your target carries more risk since you are going against a preceding trend. Being conservative with your target is applicable to a reversal trade as opposed to a Breakout setup.
A Breakout trade takes advantage of strong trends and momentum, which means you can extend your target farther than you would in a reversal trade.
Remembering these fundamentals for each trade is going to make you more efficient and consistent in your trading. It will also help prevent greed from dictating your decisions when it comes to your exit.
If you want to take a look at my picks for 2021’s best trading setups, check out this webinar.
A tip that comes straight out of the trading manual, using trends to your advantage.
We’ve all heard “the trend is your friend” by now, but what happens when this friend dumps you on the side of the street and takes all your gains away?
A trend has to end at some point! They always have and they always will.
The key is to look at certain levels in order to confirm whether the trend will continue. Psyche levels and previous price action are great areas to look toward in order to get an idea of where price might meet a barrier.
With your exit, it can be very easy to convince yourself to keep holding and wish for 5RR, or 6RR, or maybe even higher. Don’t fall into that trap because none of those gains are realized profit.
So let the trend be your friend, but be ready for it to break up with you and I promise you won’t lose out on all your trade’s profits.
The correct support and resistance(SR) levels are the foundation of any successful price action trader. A fundamental building block of my strategy and many others, if you have them placed in the right areas, you are going to exit your trades better – no doubt.
Being able to identify barriers to price and assess price action around them is something you need to build a habit out of.
If you practice placing your SR you will build confidence and the skill itself. You can check my own SR against yours right here in order to practice. Before the trading week starts, every week or 2, you should clean your charts and replace them with new SR.
My final tip is one that is a bit of a no-brainer but is always the first step in my trading process and it is the most important one:
Price action is there to help you! There is a swathe of data you can look back on in order to help you make a more informed decision.
This ties up everything in these tips, your reading of price action influences your SR levels, it is the foundation of your analysis when identifying trends, it informs you of the type of trade you are looking at.
Your understanding of price action plays a large role in helping you exit at the right time.
Multiple days of indecision forming near your target? Maybe you should implement a maximum number of indecision candles before you exit a trade.
You don’t need to learn the names of candles off by heart – you don’t need names to understand what a candlestick’s story is.
So there are my 5 tips for helping you with your trade exit strategy. Share some of your tips below with other traders!