Trading exit strategies

August 15, by Charles LeBeau. Exit strategies for investors and traders are a much neglected subject. There are thousands of books that attempt to teach us about what and when to buy but I can count the books about selling on one hand and have a few fingers left over. As a young college student I bought a contract of corn futures that was expected to expire in less than a month.

Buy and hold was not an option in the commodities markets, so my immediate problem to solve was when to sell my 5, bushels of December Corn. Click here to learn exactly how trading can maximize your returns with our new 2-Period RSI Stock Strategy Guidebook.

Included trading dozens of high-performing, fully quantified stocks strategy variations based around the 2-period RSI. One of my college professors had taught me the strategy I had used to buy the corn contract.

But when I sought strategies advice on when to sell it, he shrugged, smiled and told me I was on my own, but to be sure to sell it before it was delivered to me. I suspect that many of those reading this article are also looking for help, so I will briefly share some basic thoughts about what Trading have learned over my many years of focusing my attention on exit strategies.

Investment and trading results depend on exits — not entries. Everyone needs to realize exit our exit strategies exit the outcome of our trades.

Our exits directly strategies our profits and our losses so they deserve our trading attention and effort. Try to find even more information trading when to sell. When David Lucas and I were doing our research for our book Computer Analysis of the Futures Marketwe were involved in testing a large number exit popular technical indicators to see which ones produced the best trading results.

Based on our testing results it was obvious that the exits were more important than the entries. After some careful thought, our solution to the entry testing problem was simply: If we used any other exit method it had too much influence on our test results. Define risk and limit your risk.

Attention to exits is important because it is our exit strategies that allow us to define and control risk. Without an exit strategy, risk exit undefined and uncontrolled. That amount of risk should never be acceptable but that is exactly what most uninformed investors are doing.

Those investors who rely on Buy and Hold or who have no exit strategy should realize that they are using the most risky exit strategy ever conceived. The risk of Buy and Hold is exit undefined, uncontrolled and limited only by the amount of capital on the table.

Buy and Hold ignores the fact that risk control is perhaps the most important problem in all of investing. Rather than to solve this critical risk problem directly by employing a well thought out exit strategy, the advocates of Buy and Hold, resort to all sorts of creative but often complex measures involving carefully weighted diversification, asset allocation models, correlation studies, portfolio balancing and rebalancing and so on.

Is that so difficult? Rather than adopting an intelligent exit strategy, in the first place, all of this extra effort is devoted to making a basically unintelligent and unlimited risk strategy less risky.

In my opinion that is a serious waste of intellectual talent. But if you default to Buy and Hold as your exit plan, you strategies need all of the best intellectual help you can find to lessen the risk. Unlike profits we have direct control of the size of our losses so why not make the effort to control those things that we know we do have the power to control. Unfortunately, profits are mostly beyond our control. Controlling losses is easy but controlling profits is impossible.

However, in order to accurately decide the size of the position to buy, we first have to know exit we will exit if we are wrong so that we can calculate our risk. The purpose of this article was to help you understand that exits are critically important to investors and traders of all shapes and sizes and to voice my strong opinion that Strategies and Hold is not an acceptable exit strategy. If you are interested we will have future articles about some specific technical strategies.

In the meantime you are invited to visit www. Charles LeBeau is director of quantitative analytics at SmartStops. RecentTrading Lessons Tagged With: Strategies LeBeauExit planexit strategiesExitsrisk controltrading risk. ConnorsRSI is the first Quantified Momentum Indicator -- the next-generation improvement to traditional RSI indicators.

At Connors Research, we are using it as strategies overlay to many of our best strategies to make them even better -- now you can, too. Enter your email address to get your FREE download of our Introduction to ConnorsRSI - 2nd Edition - Trading Strategy Guidebook with newly updated historical results. The Connors Group, Inc. About Trading Contact Us Testimonials Link To Us.

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