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Lesson 11 – Exit The trade

/Lesson 11 – Exit The trade

Exits – general.

Unfortunately very few investors consider having a process for exiting a trade or more importantly, taking profits. So often investors will own a stock where the price has risen considerably. They will then sit back, wait for higher prices that don’t eventuate. They will continue to watch prices decline until the trade becomes a losing position. Then they will wait for prices to rise again. Invariably prices continue to fall and the investor then chooses to put his head in the sand and wait.

Far better to have an exit strategy all planned PRIOR to the purchase of a stock.

Look for profit taking target areas

Prior to entering a trade you should look for potential profit targets. These targets are best placed based on previous data points. These data points might be a gap in the data, a previous high or a clear area of resistance. Never set a target based on a dollar value or a percentage. If you set profit targets at say 15% you negate the potential for making huge gains.

Always have an exit strategy.

In a Bull Market consider using a 34/55 day dual moving average crossover as your trailing stop loss method. Having been involved in several bull markets I have no doubt that the most consistently profitable method of trailing a stop loss is by the use of implementing a 34, 55 day moving average crossover.

How do I intend exiting this stock

Prior to purchasing a stock you need to give serious consideration to how you will sell the stock. A “trailing stop loss” is clearly the preferred method and is usually done by using moving averages to trail the price. I have mentioned using the 34/55 day dual moving average crossover as one method of utilizing a trailing stop. This is particularly useful in a bull market. My other preference is to use prominent data points, placing my stop loss a “tic” below the most recent prominent low.