Well Planned Exit for Multiple Trading Possibilities

Well Planned Exit for Multiple Trading Possibilities

Submitted by adil on Fri, 02/13/2015 - 11:54

When a trading system is developed, coding the entry is comparatively easier than coding the exit strategies, because exit strategies need to be accurate. Therefore, coding the exit strategies require a lot of devotion, effort and attention. The traders learned the importance of having accurate exits, and its difficulty level after years of experience.

Whenever a trader enters a position, he knows exactly where the market stands at that point of time, and if the events and conditions are suitable as per the rules of their trading system, a valid signal to enter a trade can be generated. Entries are comparatively easier, because a trader sets the rules and the market follow these rules. However, once a trader enters a trade, the entire scenario changes and anything can happen as there are endless possibilities that can affect the open position.

Why does a Trader Need Well-planned Exit?

Being a binary options trader, you should know that you cannot deal with all the scenarios with a single or double exit strategy. There are different trading systems where entry conditions are simply reversed to develop the exits, but proper planning and well anticipated decisions are required in order to have a reasonable and accurate exit, because a large number of opportunities arise as a result of a series of well-defined exits cannot be availed with simple exits.

With a well-planned exit, a trader can successfully manage a series of critical trends, and therefore, money management exit is employed by most of the experienced traders to avoid losses without any difficult situation. If the trade moves in your favor, you should move the exits closer to reduce the risk of loss, and find a breakeven exit to prevent the profits earned on your trades.

The goal of a trader is to maximize profit. Being a trader, you should never take small profits once they arise, if you know that you have a potential to earn from the trade. Therefore, you should execute an exit strategy, which will safeguard your small profits while you continue to trade in order to maximize your returns.

Yo-yo Exit

When you are trading in the binary options market, it is not possible to place a trade that works in your favor every day, you often experience fluctuations. Therefore, in some cases, you can move your exit away to avoid closing your position prematurely.

One such example is highly efficient Yo-yo exit, which is based on estimating the movement of an asset price from last day’s closing position. In this case, the trader wishes to exit as soon as the unfavorable price movement is about 1 and a half times higher than an Average True Ranges from the last closing position. Yo-yo exit is based on volatility, and it moves away endlessly in case of a series of adverse closing prices that are caused during the days when prices moved in the opposite direction and volatility trigger couldn’t be fully reached. A trader must know that using this exit, which move away endlessly, is of no use to reduce the risk of loss, and so, it should be used with those exits that do not move away.

Understanding Multiple Exits to Secure Various Levels of Profitability

The yo-yo exit is used to avoid the severe one day reversal so as to avoid huge losses, and to lock in the breakeven point. But, you still have to know how to secure profits. The higher the profit reaches, the closer they are protected by the traders. This strategy demands multiple profit taking exits. For example, if you are able to earn a profit of $1500, you would want to secure at least 50% of it and reinvest the remaining 50%. So, an exit can be placed at $750 above the entry price, which allows you to hold an open position with a hope that it will grow. However, if the profit is around $10,000, reinvesting $5,000 would not be a wise choice, and the exit stop shouldn’t stay at $750. In that case, multiple exits are used at different levels of profitability.

There are some traders who believe that trading systems with a few rules are better than the system with so many exit rules, but it is not true, because a trader can retain high profits if he applies multiple exits at different levels of profitability.