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Exit strategy is equally important for intra-day and positional trades; however in case of intra-day trading exit strategy plays crucial role as the time allocated for our trade to perform is limited and short.
Getting out of the trade when the final target is achieved is an ideal exit.
However the ideal is not practical and all the professional traders/ investors will agree on this point.
Speaking of a practical EXIT strategy, we must have following points covered:
1. Having a reasonable stop loss
2. Moving the stop loss in order to prevent trade from making any unreasonable loss
3. Trailing the stop loss to protect and maximize the profit.
All these points are elaborated below:
1. Having a reasonable stop loss:
The stop loss should not be too tight. The tight stop loss may ensure the smaller losses however the chances of hitting this kind of stop loss are higher. The stop loss should be wide enough so that it gives a proper room for the price to move. So concluding a reasonable stop loss is a crucial aspect of a successful trading.
For a reasonable stop loss, always practice the right entry. Too early entries in the trade can ensure the smaller stop losses however they come with higher risks to hit those stop losses frequently.
When the entry is well calculated, even though the stop loss is wider, the chances of hitting it are lesser.
2. Moving the stop loss in order to prevent trade from making any unreasonable loss:
Once the trade starts moving in your direction and gives conclusive closing confirmation (like closing above important pivot, support levels in case of bullish trade and in case of bearish trade closing below the important pivot, resistance levels) ; then by calculating a reasonable cushion for price movement, move your stop loss cost to cost or just above the cost. This will make sure that even though this stop loss is hit, your trade is not in the loss. This is the important step in the exit strategy.
3. Trailing the stop loss to protect and maximize the profit:
Premature exits often give notional and opportunity losses; giving us a guilt of early exits.
To mint money from your targets, as the trend keeps moving in your trade direction, keep trailing your stop loss to protect your existing profit and giving a chance to grow your future profits as the price moves towards the target.
Trailing the stop loss is the skill and it can be mastered with real time experience in the trading.
