The Entry/Exit Strategy That Suits You

01/24/2012 3:00 pm EST


Robert Miner

Author, High Probability Trading Strategies

In trading, being right doesn’t always mean being profitable, and Robert Miner explains how to execute with confidence by finding the most effective places to enter and exit trades.

We’re talking about getting in and getting out with Bob Miner. Bob, give me some entry and exit strategies that you suggest that are most profitable for traders.

OK, there is a key concept; I’m really big on understanding concepts. The same information that you use to enter a trade or to identify a potential trade opportunity, you have to use that same information to adjust your stop and exit the trade; in other words, to “manage” the trade. 

So, for instance, I use a lot of dual-time-frame momentum strategies to enter the trade with a relatively small capital exposure. If the market tends to move in the direction I’m hoping it’s going to move in, I use those same types of strategies to adjust my stops. 

So, if I have a momentum trade that I entered because it was oversold, if it ends up being overbought, that means I want to get that stop really close to the market.

But, until that condition arrives, my stop is going to be far from the market because I want to give it room for that momentum to cycle and to reach an overbought stage.

Particularly in a market that is as volatile as we’ve seen recently.

Yes, exactly. Well as an example, we had a big down day on a Tuesday or Wednesday. It was like a 40-point down day in the S&P, and it was a long ways away from the little swing high where the stop needed to be.

I made a trade on a bear market ETF, but my position size was very small because the capital exposure was very long, and it wasn’t until many days later until it took out a new swing low that I even adjusted the stop.

I kept that stop far from the market until we had a reason to adjust it, and that was when the market finally began to trend in the direction anticipated. 

So, you use not only position size but the stop to manage the capital exposure?

Absolutely. Position size is one of the most important things for any trader, and most people don’t pay enough attention to that. 

If you identify a trade and maybe there is a large capital exposure because of where your entry would be and where your initial stop would be, you have to reduce that position size so no matter what type of trade you take, you’re never risking more than 2% or 3% of your account size. 

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