According to statistics by Boeing, 16% of fatal accidents occur at take-off, while 29% occur at the landing phase. Just like flying an airplane, an experienced trader understands that knowing when to exit a trade is doubly important as entering into one.
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This brings us to ask questions like: How do you get out of a trade while you’re in profit? How do you time your exit if a trade is going your way? Is there a price target to watch for?
We can exit on a few points listed below.
Exit on a weakness
If you were long exiting from a sign of weakness in a trend, you would wait for the price to retrace back from the highs before coming out so, now it’s time to wait for proof that the price has turned before exiting.
Example: You are trading long and the price is high; you can exit when the price comes back to a specific low price because there are good indicators that the market will drop significantly. It’s best to exit with some profit than to lose it all.
Exit on strength
In this case, you’re waiting for a price surge in the positive direction as shown below. It sometimes comes into play when there is a strong move upward. Here you wait to see if you can time the last bull rush before exiting at that point. In essence, don’t wait for the price correction.
Certainly, you may want to kick yourself if the price climbed higher than your exit but if it’s your trade strategy and you’ve made a profit then it’s still a gain.
Exit on Support or resistance
This is one of the most common ways traders exit a position in a market. The trader puts a benchmark sum on both the trade highs and lows to take a stand on the range of acceptable profit or loss. This means that the trader identifies the support level which occurs when a price downtrend is expected to pause, and the resistance level which occurs when an uptrend should temporarily pause. This method is safe because the trader uses price history to predict what is going on with the trade, and this makes identifying exit points easier.
The chart above clearly shows the Bitcoin price halt as it enters the $10,940.00 resistance level established on August 19 ’19.
Exit Based on Moving Average
A moving average combines price points of an instrument over a specified time frame and divides by the number of data points to give a single trend line. It helps the trader determine the direction of the trend at the same time will also help lessen the impact of any random spikes in price.
Notice the BTCUSD close below the MA-9 on July 22 after exiting crypto-winter on February 25 ’19, confirming profit-taking by earlier bulls.
Volatility-based Exit Strategy
In this case, something like an Average True Range (ATR) can be used. Assume that a cryptocurrency’s daily ATR is 100; set the take profit to 2X the daily ATR.
A take profit target is set at the specified level, and the trade is automatically exited.
This method is very systematic and very easy to calculate. A problem might occur if the price is not quite where you set them. This could indicate that the pricing targets need adjustments. Using current strategies like volatility is always advised, but you must also weigh the pros and cons before deciding.
Time-based Exit Strategy
In this method, the trader decides a specific time limit when the trade will be exited. For example, a trader can exit before the New York market opens or in an hour time if a specific price does not change momentum. These are times when you can pull off from trade. Time-based strategies can be subjective and depend on the traders’ judgment of price momentum.
Having known all these strategies, the best advice will be to combine them to achieve your trading plan.
Disclaimer
Content provided by CryptoTraderNews is for informational purposes only, and should not be construed as legal, tax, investment, financial, or other advice. All information is of a general nature. As always, there is risk with any investment. In exchange for using our products and services, you agree not to hold CryptoTraderNews Pro, its affiliates, or any third party service provider liable for any possible claim for damages arising from decisions you make based on information made available to you through our services.
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