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John Manasco wrote:
Snip-Snip-Snip
> So I admit it, I sometimes lose money because of my exit strategies. A
> lot more than I would like to admit. So what are some of your thoughts
> on exiting a position. I really hope I get a lot of feedback on this
> because this is really important to me, and it seems to a lot of other
> people too.
>
> John Manasco
============
I agree, John. To make money, one should give as much consideration to
the exit as the entry. One could do very well entering the market at
8:45 am each day provided he had a good exit system that would take him
out if wrong and allow him to keep a large portion of profits if right.
Last year I was introduced to the 1/2 of ATR and the 1 1/2 ATR exit
strategies...exiting if the market moved 1 1/2 of ATR against your
position. More conservative: 1/2 of ATR.
I have found that basing the exit on the ATR gives me a sense of where I
am in a move. Studying my market helps also: I have found that when the
DMark retraces 20 ticks of a move, the retrace is likly to continue.
Also, when I give up 9 ticks on a profitable DMark trade, I will take
the profit and, while still on the phone, place an order to re-enter if
the price regains the 9 ticks. This one ploy has made a significant
increase in what I take out of a trade. Harley made a post concerning a
short position on AMAT today. An example of the aforementioned exit is
when AMAT traded down to 23, then moved up to 24, take the profit at 24
and sell AMAT short again at 22 7/8. If the move continues against your
short position, you have your profit. If the move continues in your
favor, you only lose a "Potential" 1 1/8 points of profit. If the move
does not take out the previous low, you are not in the trade. You have
booked your profit. Low risk situation.
One should not have to second guess a trade: the market tells if you are
right or wrong AT THIS TIME. One can have the direction right, but if
the timing is off, the results are the same: lost money. Do not take a
loss home. Never allow a profit to turn into a loss. Never!
On a TBond trade I will take an eight tick loss on an opening position,
and then I am gone. I will have lost money, so I cannot be right. One
tick on the Bond is $31.25. Commission on a day trade is $28.50. I can
always re-enter the trade at a lower cost than staying with a losing
position . On a stock trade, if I am short and price trades above
yesterday's low, I am out. I have no way to know if the next tick will
be higher or lower, but I do know that in order to go up, price has to
trade above yesterday's low. If long, and price does not violate the
previous day's low by "n" ticks (your own risk tolerance), I will stay
with a profitable trade...as long as price does not trade below the
previous day's low. If price trades below the previous day's low (- "n"
ticks) I am gone. If price turns back up, I can re-enter above the
previous day's high (plus "n" ticks). Exit and re-entry...certainly as
important as entry.
How does one develop and maintain this discipline without allowing
emotions or feelings to interfere? It really is not difficult. Be on
the wrong side of a Bond trade at $31.25 per tick for a full point.
Believe you have a feel for the market and get on the wrong side of a
govt report day when the bond can and does move 2 points within 5-6
minutes. Have a three contract position. Then it goes your way, and
instead of making 2 points ($6000) you are out $6000 and you were really
right...just off maybe an hour. Very humbling experience. After one has
lost lots of dollars, one becomes sensitized. No feelings, just stop the
flow of blood early. After one takes some $5000 licks, it ain't hard to
take a $1000 loss. Not hard at all. For that loss to get to $5000, it
had to pass $1000 first. Been there. Done that.
Realize that while you are agonizing over a losing position, you not
only lose on that position, you lose the opportunity to win on another
position. Take the early loss and let it be small. Did not learn this
from a book. Paid the tuition in cash.
Al Taglavore
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