How to Exit Winning Trades - Part 2

Focus: TRADING

Ken Calhoun Image Ken Calhoun President, TradeMastery.com

It's smart to test out various exit signals to start scaling out of open winning swing trades at the first sign of trouble, says veteran trader Ken Calhoun of TradeMastery.com and DaytradingUniversity.com.

In the first article of this series, we identified the correct exit in the market at near the exact top (within one day of the multi-year high), designed to identify timing for exiting open long swing trades using the S&P chart. We also discussed the importance of scaling out of open winning trades in two steps, to close initial entries out over time, at key sequential support levels. Here, we'll look at closer technical exit signals for swing trades, with unique examples.

Scaling Out of Downtrending Swing Trades: A Tighter Two-Step Exit Plan
In the first article, we looked at both four- and eight-day support levels as exit signals. To extend that trading strategy, we now look at the special case where a swing trade is starting to exhibit signs of a downtrend, as defined by lower price action compared to a prior day. The goal is to start tightening in trailing stops to lock in gains at the first sign of a trend reversal.

In Figure 1, Calpine Corp. (CPN), we see that a downtrend has started to form midday (lower lows, lower highs for the current plus prior day's price action trend). To exit, we scale out of half the trade if price action gets .35 cents under the cumulative two-day low (current plus one prior day). For this CPN chart, that would be at (21.5 - .35) = 21.15 as the first scale-out exit.