E-Mini Trading: How To Exit Your Trade With Great Profits
It is my belief that knowing when to exit a trade is a tougher decision than knowing when to enter a trade.
Beginning traders, in particular, have a tendency to exit winning trades too early and hold on to their losing trades too long.
Further, one of the toughest decisions in e-mini trading is deciding to hold a trade through a retracement (in a trending market) or to hang in the trade hoping that it is a minor profit taking move that will be reverse in the direction of your trade and continue with the trend.
Knowing when to exit is one of the most difficult decisions in e-mini trading.
I make extensive use of the Average True Range Indicator (ATR) to help me in determining the potential stop/loss and profit targets in any given trade.
I generally trade renko and range bars, so I set up a separate chart with simple candlesticks and a 5 minute bar setting.
In trending markets I like to set the stop/loss to 1.
5 the Average True Range and my profit target to 2.
5 the average true Range.
I also limit my potential loss per contract to 25 ticks.
So if the market is going through a period of high volatility and the ATR is at a reading of 20 I would exclude myself from entering a trade.
(1.
5 x an ATR reading of 20=30 ticks, which is more than I am willing to risk, even in a trending market) There are, of course, no limitations on profit targets and if I catch a good move I am more than happy to raise the target so that can let a trade run by watching the order flow as orders will accumulate on either the bid or ask (depending whether you are long or short) and I can easily let it hit my profit target or see if it will run further.
I usually close trades manually and avoid trailing stops, they just aren't my style (for no particular reason except personal preference).
The problem most beginning traders experience is that they often can become excited about being in a winning trade and take their profits prematurely.
For some reason a common exit point for the beginning trader's in my trading room is 6-8 ticks.
That being said, they often do exactly the opposite in a trade working against them; they tend to exit late or let the price hit their stop/loss.
It is important to keep your profit targets and stop loss equal, at the very least.
Failure to maintain this equality results in a skewed risk/reward ratio and will inevitably result in a slow decline in the trader's futures trading account.
Finally, through the use of the order flow program I can see whether orders are accumulating on the bid or ask side.
In a losing trade at exactly one half of the total stop loss I make a decision whether or not I have simply made a poor trade entry and if so, I immediately exit the trade.
So, assuming I have my stop/loss set at 20 ticks, I would make this evaluation at 10 ticks.
(.
5 or the total stop/loss) I have learned not to be shy about making this evaluation quickly and decisively.
I do not want to get stopped out.
Failure to recognize a poor trade early on and waiting to exit the trade is asking for unnecessary losses.
Beginning traders, in particular, have a tendency to exit winning trades too early and hold on to their losing trades too long.
Further, one of the toughest decisions in e-mini trading is deciding to hold a trade through a retracement (in a trending market) or to hang in the trade hoping that it is a minor profit taking move that will be reverse in the direction of your trade and continue with the trend.
Knowing when to exit is one of the most difficult decisions in e-mini trading.
I make extensive use of the Average True Range Indicator (ATR) to help me in determining the potential stop/loss and profit targets in any given trade.
I generally trade renko and range bars, so I set up a separate chart with simple candlesticks and a 5 minute bar setting.
In trending markets I like to set the stop/loss to 1.
5 the Average True Range and my profit target to 2.
5 the average true Range.
I also limit my potential loss per contract to 25 ticks.
So if the market is going through a period of high volatility and the ATR is at a reading of 20 I would exclude myself from entering a trade.
(1.
5 x an ATR reading of 20=30 ticks, which is more than I am willing to risk, even in a trending market) There are, of course, no limitations on profit targets and if I catch a good move I am more than happy to raise the target so that can let a trade run by watching the order flow as orders will accumulate on either the bid or ask (depending whether you are long or short) and I can easily let it hit my profit target or see if it will run further.
I usually close trades manually and avoid trailing stops, they just aren't my style (for no particular reason except personal preference).
The problem most beginning traders experience is that they often can become excited about being in a winning trade and take their profits prematurely.
For some reason a common exit point for the beginning trader's in my trading room is 6-8 ticks.
That being said, they often do exactly the opposite in a trade working against them; they tend to exit late or let the price hit their stop/loss.
It is important to keep your profit targets and stop loss equal, at the very least.
Failure to maintain this equality results in a skewed risk/reward ratio and will inevitably result in a slow decline in the trader's futures trading account.
Finally, through the use of the order flow program I can see whether orders are accumulating on the bid or ask side.
In a losing trade at exactly one half of the total stop loss I make a decision whether or not I have simply made a poor trade entry and if so, I immediately exit the trade.
So, assuming I have my stop/loss set at 20 ticks, I would make this evaluation at 10 ticks.
(.
5 or the total stop/loss) I have learned not to be shy about making this evaluation quickly and decisively.
I do not want to get stopped out.
Failure to recognize a poor trade early on and waiting to exit the trade is asking for unnecessary losses.
Source...