E x i t S t r a t e g y

Exit strategies are harder to get right than entry strategies. Unfortunately, they are much more important because, self evidently, they control the profit and loss. If you trade more than one strategy, you will need to answer these questions for each strategy employed

as the signals that determine your exits may vary. Arguably, for discretionary traders, the best exit strategy is one that is dynamic and market controlled, as opposed to a rigid mechanical strategy imposed upon each trade, regardless of market conditions. The difference between

the two can best be explained with an example. Suppose you have a mechanical strategy that is based upon a 3:1 risk reward ratio. So, if you risk £30.00, you will exit as soon as the trade shows a profit of £90.00 or a loss of -£30.00, whichever gets hit first. Very simple. If you

have a Success ratio of 26% or more, then in time, you will make money. Not a lot, but some. Chances are that a good percentage of the losing trades will show some gains before moving against you and triggering your stop. Additionally, a handful of the winning trades will go on to achieve much larger gains than the £90.00 you took when you closed the trade using the mechanical exit. A dynamic, market controlled exit enables you to take some money off the table offered by the eventual losers and let the big winners run to realise a greater proportion of the increased gains on offer. These additional profits could transform an overall trading strategy from one that barely breaks even into one that is very profitable indeed.