3 Exit Trading Strategies to Increase Profits

By Deya Hroob 

exit strategy



If you are a trader looking to reach the next level in your trading performance, then it is time to master a few exit strategies. By understanding and implementing these three simple exit strategies, you can make your trading more profitable than ever before and protect your capital from disappearing.

What are the Exit Strategies?


 An Exit Strategy is a plan for exiting a trade that helps traders minimize their losses and maximize their profits. It involves evaluating when it's the best time to enter and exit the trade and how to do so in order to optimize returns.

Exit Strategies can help protect capital, as they allow traders to know when they should cut their losses short while also allowing them to determine when they should take profits off the table. Utilizing an effective Exit Strategy is essential for any successful trader who wants to stay ahead of the markets. In general it enables investors to set up stop-losses to manage risks, as well as open short positions when appropriate.

There are several Exit Trading Strategies out there, but we will focus on three kinds in our article.



1. Moving Averages 

Using moving averages is a great way to maximize profits when exiting a trade. Moving averages are lagging indicators that follow price movements and help traders stay on top of the market for entry and exit points.

In this strategy, we use 20-day EMA with 50-day EMA. You can also use it with different EMAs length or time frames to see which best for you.

 The strategy is so simple, we exit our trade when 20-day EMA crosses under 50-day EMA. As a confirmation, you can wait for the price to retest the 50-day EMA and bounce back off it.

In the ETH/USD chart below, 20-day EMA crosses under 50-day EMA, this is the first signal of a trend reversal, so we waited for the price to touch back the 50-day EMA as a confirmation and exit our trade. Traders may also take this signal to open short positions.

  After we closed the trade, Ethereum has declined sharply.


Exit Strategy Gols chart
Let's take another example, below is the GOLD daily chart. As you can see 20-day EMA crosses under 50-day EMA. Also, the price touched back the 50-day EMA. Therefore, we exited our trade.

After we exited the trade, Gold fell more than 10%.




Moving Averages Crossover Trading Strategy





2. Head and Shoulders Pattern

Head and shoulders is a well-known reversal pattern. When spotted in charts traders expect a reversal in price is more likely to happen. You can see them on all charts length. It consists of a head ,two shoulders and a neckline as shown in the chart below. To validate the pattern, price must break down the neckline.

The exit point should be placed below the neckline. In some cases, the price may retest the neckline before it resumes its way down. Thus, retests of the neckline may be taken as a confirmation to exit any open positions. 

In HT/USD daily chart below, the Head and Shoulders pattern is  spotted in the chart, so we placed our exit point just below the neckline.

After we closed our open position, HT/USD plummeted from $4 to $1.50.


Exit Strategy HTUSD  Chart

3. Trend Lines

  When a major trend line is broken, it is a signal of a trend reversal. We should exit once the trend line is broken. Usually, the price retests the trend line before continuing the fall.

Below is USOIL daily chart, the price broke down the uptrend line, thus, we placed our exit point below the trend line.

 

Exit Strategy OIL Chart
 Now, let's use two exit strategies in one chart. I will use the same above chart for my example. I employ the trend line and moving averages strategies on the USOIL chart. Notice how amazingly the two strategies gave us the same exit point. We exited the trade with confidence.

After our exit, OIL dropped more than 20%. 

Exit Strategy Oil Chart



Dead Cat Bounce Trading Strategy 

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