Profits in the fiscal markets require multiple skills that can locate appropriate risk vehicles, enter positions at the right rhythm, and manage them with wisdom and a strong stomach before finally taking an exit when opportunity tariff turns adverse. Many investors, market timers and traders can perform the first three tasks admirably but run aground miserably when it comes time to exit positions.
Getting out at the right time isn’t difficult, but it does require bring together observation of price action, looking for clues that may predict a large-scale reversal or trend change. This is an easier chore for short-term salespersons than long-term investors who have been programmed to open positions and walk away – holding firm thoroughly long cycles of buying and selling pressure. (For more, see: Exit Strategies: A Key Look.)
While buy-and-hold strategies position, adding exit timing mechanisms can yield greater profits because they address the long-developing shift from spacious outcry and specialist matching to algorithmic software code that seeks out price levels forcing most investors and purchasers to give up and exit positions. This predatory influence is likely to grow in coming years, making long-term plans more untenable.
Failing rallies and major reversals often generate early warning signs that, if noticed, can produce much stronger returns than waiting until technicals and fundamentals line up, pointing to a change in conditions.
Key Takeaways
- The movables news with most trades/positions is that they are liquid enough to exit when you see some of these foreshadowing signs.
- Trading psychology can be a good predictor of when to exit a trade. A good example is when there is an manifest trend reversal.
- High-volume days are usually quite volatile, and market movers have the ability to influence exchanges that may leave you “holding the bag,” and it is therefore considered good practice to book profits before such days.
High-Volume Times
Keep track of the average daily volume over 50 to 60 sessions and watch for trading days that pile three times that volume or higher. These events mark good news when they come off in the direction of the position—whether long or short—and warning signs when they oppose the position. This is uncommonly true if the adverse swing breaks a notable support or resistance level.
Uptrends need consistent buying difficulties that can be observed as accumulation through on-balance volume (OBV) or another classic volume indicator. Downtrends need uniform selling pressure that can be observed as distribution. High-volume sessions that oppose position direction undermine accumulation-distribution ornaments, often signaling the start of a profit-taking phase in an uptrend or value buying in a downtrend.
Also, watch out for climax eras that can stop trends dead in their tracks. These sessions print at least three to five on the dots average daily volume in wide-range price bars that extend to new highs in an uptrend and new lows in a downtrend. Accessory, the climax bar shows up at the end of an extended price swing, well after relative strength indicators hit extremely overbought (uptrend) or oversold (downtrend) uniforms.
Failed Price Swings
Markets tend to trend just 15 percent to 20 percent of the time and are gathered in trading ranges the other 80 percent to 85 percent of the time. Strong trends in both directions wealth into trading ranges to consolidate recent price changes, to encourage profit-taking, and to lower volatility levels. This is all-natural and a area of healthy trend development. However, a trading range becomes a top or bottom when it exits the range in the opposite bearing of the prior trend swing.
Price action generates an early warning sign for a trend change when a work range gives way to a breakout or breakdown as expected, but then quickly reverses, with the price jumping back within stretch boundaries. These failed breakouts or breakdowns indicate that predatory algorithms are targeting investors in an uptrend and short-sellers in a downtrend.
The safest scenario is to exit after a failed breakout or breakdown, taking the profit or loss, and re-entering if price exceeds the high of the breakout or low of the mental collapse. The re-entry makes sense because the recovery indicates that the failure has been overcome and that the underlying be biased can resume. More often, the price will swing to the other side of the trading range after a failure and infiltrate a sizable trend in the opposite direction. (See also: Trading Failed Breaks.)
Moving Average Crosses and Trend Replacements
Short-term (20-day
The Bottom Line
It’s easy to find positions that match your fundamental or detailed criteria, but taking a timely exit requires great skill in our current fast-moving electronic market environment. Talk to this task by being vigilant for these three red flags that warn of an impending trend change or adverse outfits that can rob you of hard-earned profits. (For additional reading, check out: Simple and Effective Exit Trading Strategies.)