Day Trading Stocks Education

Exiting the Trade - Part II

In Day Trading Stocks Education, I continue the series on Exiting the Trade.

3. The rocket. This is the stock that takes off suddenly, as soon as you enter the trade. Price might zoom up 3% within five minutes, quickly going past your target. But, as you've seen, sometimes these rockets fall as quickly as they rise, with volatility taking away your profit almost as soon as it gives it to you. Having seen that potential profit (and yet failing to exit the trade at that point) you can get slightly distraught and decide to wait until you get that profit back, as if the stock owes you something. Just remember, the market owes you nothing. It doesn't care about your situation. You may never see that top price again. This is tough love from the market but it’s crucial in your day trading stocks education path.

There are two ways to play the rocket. One is to exit as quickly as possible and accept the gift as just that, a gift. If it ends up going higher, then you may end up missing some profit. But, often, an exit at the tip of the five-minute rocket candle is an excellent exit. The other way of playing the rocket is to quickly move your stop to a profitable position. In this way, you secure some profit while you wait to see if the rocket goes higher. A third possibility is the combination of these two strategies, taking half of your exit at the tip of the rocket while moving the other half of your shares to a guaranteed profit. Whichever strategy you choose, speed is often critical.

4. The steady climber. This is the stock that goes up after you purchase it, goes past your target, and you wonder when you should exit the trade. Do you exit once it hits your target, even though all indicators show that price can still move higher? Do you have a limit on how much you're willing to make on one trade? The best exit strategy for this stock is to use moveable stops, gradually moving your stop order up, to match the slowly moving price. As the minutes go by, you successfully lock in higher and higher profit, while having less and less stress regarding the exit. You might also look at the larger time frame to see how price and indicators look there. Sometimes, these larger time frames (i.e. 10 or 15 minute charts) can help you stay in a trade longer, so you can "maximize profit". When your analysis tells you that price has probably peaked, then you can take away the stop and simply exit the trade at that peak price. Another option is to take some profit off the table as the stock continuously steps up. There is no rule that says you have to exit all of your shares at the same price. I wish that someone had told this to me when I was just getting started with my day trading stocks education.

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