Perfecting Your Exits : Best Exit Mechanisms For Automatic Systems

A common trading saying is 'The exits are where the money is', and I totally agree. Knowing when to step out and take the money off the table is a gift few traders possess, and even fewer systems implement. In thie article I will show you several of my favorite techniques to take profits off winner trades.

1: ATR Trailing Stop

Anyone who has developed systems is familiar with trailing stop, but when volatility of the commodity changes the trailing stop becomes too sensitive, and often yields poor results. This is why many system incorporate ATR-based trailing stop. ATR, or Average True Range, is an indicator developed by Welles Wilder, which is used to measure a commodity's volatility. Basing your trailing stop on this indicator can yield better results, as the trailing stop adjusts itself to the commodity's volatility rate and by doing that requires less adjustments and optimizations.

2: 4 Bar High\Low

This is one of the most powerful exits, used by the Turtle Traders themselves and taught by Richard Dennis and Bill Eckhardt. It is simple, yet powerful: Stop is moved 1 pip below the lowest low of 4 last bars (for long), or 1 pip above the highest high of 4 last bars (for short). As simple as it sounds, it often keeps the trade on and allows the system to profit from giant trends and also from the shorter once. I have incorporated this exit mechanism in many systems.

3: Quickly Moving to BreakEven Point

Moving quickly to break-even point can be very profitable in systems that are based on price-action. As confirmation of trend is given from price, a few pips profit is almost certain to come, making it easier to move to break even and to protect your equity. This method will decrease profits but will ensure much lower drawdowns and overall better profit factor. It works especially well in systems that incorporate stop orders in their entries - thus confirming price short-term trend.

These are few exit mechanisms that can immediately improve your system's profits.
To automate your system or create a custom indicator, click here.

Return to Articles