Trading For Success - Part Four

25 April 2018 | Dwaine van Vuuren

ALSO READ: Long-term Macro | Short-term Macro | Share Selection & Stops | Correct risk/reward ratios | Proper position sizing | Summary

STEP-5: Selection of correct exit targets

Apart from the Donchian stop we spoke about that will naturally act as a "trailing stop" to rise with the share price, we need to program in profit exits. Novices fail because they fail to identify their profit exits upfront. Getting into a trade is easy - it’s the getting out part that is tricky and determines your success or not!

Let’s look at that hypothetical trade again:


We chose two well picked exit locations where its highly likely the share price is going to encounter resistance. Many trades may only have a single EXIT level but this one has two, which we call a "staged EXIT" strategy that works as follows to reduce your trade risk and raise the odds of a successful outcome:

  1. When the share price closes above EXIT1, offload half your positions and make EXIT1 your new stop (trade abort) level.
  2. When the orange trailing stop rises above EXIT1 it takes back the role as stop
  3. When the share price reaches EXIT2, close out all your remaining positions

Some traders elect to not offloading half their positions at step (a), but follow all the other rules, which is also fine. It can yield higher profits but is obviously riskier since it doesn’t offload 50% of the trade to bank profits - who says the trade will reach all the way to EXIT2?

ALSO READ: Long-term Macro | Short-term Macro | Share Selection & Stops | Correct risk/reward ratios | Proper position sizing | Summary


Dwaine van Vuuren
Retail-side Research
RecessionAlert, Sharenet Analytics

Dwaine van Vuuren is a full-time trader, global investor and stock-market researcher. His passion for numbers and keen research & analytic ability has helped grow (US based) and PowerStocks Research (now Sharenet Analytics) into companies used by hundreds of hedge funds, brokerage firms, financial advisers and private investors around the world. An enthusiastic educator, he will have you trading and investing with confidence & discipline.

The information contained in this article is for informational purposes only and must not be regarded as a prospectus for any security, financial product or transaction. It is neither to be construed as financial advice nor to be regarded as a definitive analysis of any financial issue. Investors should consider this research/article as only a single factor in making their investment decision. We recommend you consult a financial planner/advisor to take into account your particular investment objectives, financial situation and individual needs. The views and opinions (where expressed) in this article are those of the author and do not necessarily reflect the official policy or position of Sharenet.