Here's a comment that Justin left yesterday:
I read many charts these days and have some sense about enter a trade . For example, when 50 ema cross 200 ema and use kd as enter signal. It's not bad for entry. After i coded my though and do back testing on tradestion. The result is not that positive cause I have to add exit signal for a complete strategy . For many times, even the entry is good, but the exit is bad that blow off the profit . The kd or rsi is very sensitive and in /out too often. I am very frustrated about exit strategy and would like to ask your help. What kind of exit methods can work in real trade ? Thanks for your help.
This is a great illustration of why exits are just as important as, if not more important than, entries. I think some type of trailing stop methodology is worth looking into. I can't give a specific recommendation because so much depends on what suits a given trader's style and/or the market conditions at a given time. Here are some ideas:
- Parabolic SAR (Stop and Reverse) - See Investopedia's 'Introduction to the Parabolic SAR' and/or StockCharts.com's article on the Parabolic SAR
- Yo-Yo Exit (that article discusses some methods of using Average True Range for exits)
- Chandelier Exit
- Adaptive Money Management Stops by Chuck LeBeau (I learned about all of the above types of stops from one of Chuck LeBeau's seminars at a trading expo back in the day)
If you don't want to get that 'fancy' you may want to do something similar to what I do. In general I push my stop to break-even once I get a 1R profit (R is my initial $ risk, i.e., how much I would lose if my initial stop was hit). As the stock continues to move in my favor I'll push my stop up incrementally to lock in more gains. I usually try to lock in at least 33% of my gains one I reach 1.5R of profit on the trade. But none of this is exact, it's definitely more of an art than a science (unlike the methods listed above).
For even more on stops and exits here are just a few of the posts I've written on this topic (which i found by doing a search on 'exits' and then another search on 'stops'):
I agree with the fact that it's the exiting that really counts. Think about this scenario: If two trader have identically great entry skills and enter into a trade that wins (profits), then the only difference between who will make the most money out of that trade is who has the better exiting strategy. Thus, exit is as crucial as entry as far as timing, precision, and technique.
Excuse my ignorance, but what is kd? I've never heard that term before.
architect,
I'm not sure but I was assuming that he was referring to %D and %K on stochastic.