Strategies · Lesson 12 · Advanced
Exit Strategies
You manage open trades mechanically with trailing stops and partial profits and do not lock in too early.
With a free account: interactive chart exercises, quizzes with answers, progress and XP.
Do Not Lock In Too Early
At the exit the disposition effect strikes: people sell winners too early and hold losers too long. Odean found that sold winners went on to outperform by 3.2 to 3.4 percentage points per year.
Tools: trailing stop (200-day MA, MA crossover, chandelier), partial profits after a sharp rise, reversal candle as a trigger. Minimum reward to risk 3 to 1, think in R units instead of USDT.
Take a partial profit, trail the runner, exit on the reversal
Interactive exercise: here you learn right on the chart, with feedback on every click. Sign up freeto start it.
When to lock in, when to let it run?
Interactive exercise: here you learn right on the chart, with feedback on every click. Sign up freeto start it.
The key points at a glance
- The exit is more important than the entry.
- Disposition effect: winners too early, losers too long.
- Trailing stop and partial profits, let runners run.
- Reset test: would I open this position again right now?
Deep dive
Why the exit is harder than the entry
The entry is a decision, the exit is an ongoing fight against your own psychology. The disposition effect: people sell winners too early and hold losers too long. In Odean's data the sold winners went on to outperform by 3.2 to 3.4 percentage points per year.
Trailing stop methods compared
Instead of selling arbitrarily you need a mechanical rule that lets the runner run. Goodman shows three proven methods.
- 200-day MA: hold as long as it closes above (BTC 330 to 8000 dollars)
- ATR chandelier: highest high of the last 30 days minus 5x ATR
- Continuation buy: a shorter exit, such as the 15- or 20-day MA
- Only trail the stop in the trade direction, never loosen it
Partial profits, runners and the reset test
After a sharp rise of about 2R you take a partial profit and leave the rest as a runner with a trailed stop. Think in R units instead of USDT, a minimum risk-reward of 3 to 1 keeps the math healthy.
Against clinging on, the reset test helps against anchoring: would I open this position now at the current price? If the answer is no, do not hold it either. Elder's sell signal: get out when the rally no longer makes new highs.
1R = your risk unit: the loss you planned per trade (distance from entry to stop loss). +2R means: won twice as much as risked.
CRV (reward to risk ratio) = potential profit target divided by planned risk. 1:2 means: twice the reward relative to the risk.
Sources: Goodman, Murphy, Kahneman, Schwager
Make this lesson interactive
Sign up for free and learn with click exercises right on the chart, quizzes with explanations and saved progress. Then you practice everything risk free on the demo exchange.
100% free, no payment details.