Exits are the same as Entries – there are ‘1 billion and 1’ different types of tools, indicators and strategies to close your positions out of the market – and there isn’t any one that is particularly better than the other. The important thing is to ensure that your exit strategies complement the timeframe that you intend to trade, so you aren’t giving too much profit back when you close out your position . If your criteria is set too close to the market, you will exit as soon as there is the slightest movement against your position and you may find yourself out of a very profitable position too early.

Exits come in two forms: a manual exit that you will need to execute yourself or an automatic exit where your trading platform or broker automatically closes out the trade at a predetermined price level.

Stop Loss / Entry Stop Loss

As discussed earlier in the Trading Plan section, the Stop Loss (otherwise called the Entry Stop Loss) is a fixed, predetermined level where the trader exits as a worst case scenario should the trade go against their favor. This worst-case scenario price level allows the trader to know the potential dollar risk is of their trade in advance. This point is the most important exit of your trading strategy.

The Trailing Stop Loss

This is a predetermined exit that follows the market and protects profits, as time progresses should the market suddenly reverse its trend. These exit levels could be any of many different calculations or price levels, the following examples are of long positions.

Percentage Trailing Stop Loss

The stop loss may trail the high/low of the market by a certain percentage. Each new high bar that the market produces sets the trailing stop loss at a certain percentage away from the high/close point of the bar. When the market finally drops below that level, the position is closed. The example below trails each high bar as it is created by 2% below (shown by the vertical line meeting the dotted horizontal line).

Each market will be different as it depends on how much the particular market fluctuates or moves on average. You don’t want to place your stop loss too far away where too much profit is lost once the market finally does reverse. Placing it too close, on the other hand, will stop your position out too early of a profitable trade.

Support Level Stop Loss (Horizontal)

These stop losses trail the market and are set under significant support levels (long) or above resistance levels (short). As the market is trending upward and creating its natural price fluctuations, it creates swings in the market; this movement in the market could be compared to a rising staircase. Just underneath each of these stairs (swing lows) a natural level of support is created, and traders can take advantage of these positions by setting their trailing stop loss under these areas.
This is because should the market retrace and fall back underneath the significant price support it is most likely going to fall further, therefore a good idea to exit this market.

Moving Average Trailing Stop Loss

Moving Averages work as an excellent trailing stop level. There are many types of scenarios or combinations ranging from a single moving average to multiple moving averages; where you exit on crossovers of faster and slower moving averages. The image below is an example of a single moving average, where the trader exits as soon as the market has 1 close below the moving average. (If the trader was knowledgeable on candlestick reversal, in this image their exit would have been confirmed by the Bearish Engulfing Pattern that appeared on the same session that the market made its first close below the moving average).

Trend Lines

Trend Lines can be used as a trailing stop loss. The trader may have a rule where they exit if the market closes or makes a few consecutive closes below a trend line. Trend lines simply show or highlight the market's current trend, or levels of diagonal support, as it is moving forward. As this diagonal line forms an invisible level of support should it be broken it is likely that the market has finished trending upward and is now ready to make its descent. These diagonal support lines are exactly the same as the horizontal support lines that were discussed a few points earlier.

Average True Range

The Average True Range was developed by J. Welles Wilder and introduced in his book, New Concepts in Technical Trading Systems (1978). The Average True Range (ATR) indicator measures the market's price movement or volatility.

Wilder designed the indicator for markets with higher volatility, such as commodities, which are subject to gaps and limit moves. A limit move simply means that the market opens up at the price of its maximum allowed move for that time period (trading session) and does not move from there until the next session – this just looks like a dash on the chart.

Wilder created the indicator to take into account these limit moves and gaps so that traders could perceive the true volatility measure of the market's sessions. The TR (True Range) was created and is simply the largest of the following three calculations:

1. The difference between the current High and the current Low.
2. The difference between the current High and the previous Close.
3. The difference between the current Low and the previous Close.

To reiterate, the greatest of these calculations is the True Range that will be used. A market's average ‘daily bar range’ may be 50 pips, however it may regularly gap up or down and create a high or low 100 pips away most days – then the average ‘daily true range’ will be 100 pips.

Knowing this information allows the trader to have a better gauge of the markets volatility and to subsequently better place their stops without being affect by the market's personal range of volatility.

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