by teamrecIt is always questioned how to best determine entry and exit strategies when trading in markets. Of course, if a trader knew exactly when to get into a market and when to get out…. wouldn’t trading be easy!! But even the most successful traders in the world can’t do that.
The best they can strive for is to catch a bigger part of any move (trend) in the market, and then get out with a good profit before the market turns against them.
I’ve always emphasized on trading with the trend and not against it, on the perils of trying to pick tops and bottoms, on support and resistance, and on letting profits run and cutting losses short, as well as trading the “breakouts.” I’ll get more specific on entries and exits, and what to do if you are in a trade and are accumulating profits or absorbing losses.
First of all, if you are getting in a trade, you should already have a general plan of action in place, including potential entry and exit points, before you enter the trade. Certainly, you can alter your plan of action in the heat of the battle, but you should not enter any trade without having a well-thought-out trading plan. Also in your trading plan you can have a few scenarios that could occur and what you would do if they did occur.
Entry and exits points in trades most times should be based on some type of support or resistance levels in a market. For example, in the metal markets at present, many traders think prices are close to a top. But I won’t go short in a metal contract just because I think it’s close to a top. I need to see some weakness in the market. I will wait for the contract to pull down through a support level and begin a fledgling down trend. Then, if I do go short, I’ll set my buy stop just above a resistance level that’s not too far above the market. And if the trend does not develop and the market turns back north, I’m stopped out for a loss that’s not too painful.
Another way to enter a market that is trending (preferably just beginning to trend) is to wait for a minor pullback in an uptrend or an upside correction in a downtrend. Markets don’t go straight up or straight down, and there are minor corrections in a trend that offer good entry points. The key is to try to determine if it is indeed just a correction and not the end of the trend.
On when to get out of a market when you’re losing money, I have a simple, yet very effective answer: Upon entering the trade, if you place a sell stop below the market if you’re long (buy stop if you’re short), you know right away how much money you will lose in any given trade. You should never trade without employing stops. Thus, you should never be in a trade and have a losing position and not know where your exit point is going to be. I prefer setting tighter stops because I’m not rich and want to survive financially to trade another day. Yes, I’ll get stopped out sometimes and then right away the market will turn in the direction I had planned. However, by setting tighter stops, I will not be in a position whereby I lose substantial money because I’m fighting the market, “hoping” it will soon turn in my favor.
What about when you’ve got a winner going and good profits already in place? This is the time to employ “trailing stops.” For example, if you’re long a market and it reaches your initial upside objective, but now you really think there may be more upside and you don’t want to exit your trade. You put in a sell stop at a certain level below the market that allows you to stay in the winning trade. But if the market turns south you are stopped out and still have a decent profit.
A general rule of thumb is to place stops and trailing stops just below a support level that’s not too far below the market. If you’re short, place the buy stops not too far above the market.
ABOUT THE AUTHOR
Mr. Anup Kumar Chaurasia is currently working as Senior Vice President and Head – Mandi with Religare Commodities Ltd. Mandi is a vertical of Religare Commodities Ltd. with commodities specific branches across 50 Mandi locations pan India serving all financial products such as Commodities, Equities, Insurance, Mutual Fund etc to the commodities traders (both Speculators and Physical traders).
A young and dynamic professional with 14+ years of impressive track record of success at every stage of his career. A Masters degree holder in Business Management, his rich education and his wide experience in the field of Commodities, Equities & Forex broking combined with his razor sharp business acumen has helped him scale the height at which he is today.
He is a rare combination of Dynamic Leadership, Result Orientation, Hardcore Selling Skills, Client Servicing, CRM, with a Good Knowledge of Commodities Trade and a Rich Experience in the Broking Industry on PAN India scale.
He is also a manager par excellence to all his colleagues and subordinates, a confidant whose advice is always sought and above all else a magnanimous human being.
