Using Trade Exits To Gain Maximum Profit

Exit strategies are an integral part of any trading system. Without an exit strategy, your trading is doomed to failure. All experienced and veteran emini future traders know what their exit will be before they enter any trade.

Exits are designed to attain the maximum amount of profit and giving little profit back once the profit is made on the trade.

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All trading systems should have different exit strategies designed into them depending on the current market situation. For example, the trader may have one exit designed explicitly for getting out of the market that do produce a small loss but there is a decrease in initial risk.

Other exits are designed to produce maximum profits. While some are utilized to keep the index futures trader from giving back too much profit. In this article we will cover a few of the exit strategies that can be designed into a trading system and how they can be utilized.

Market Timing

Market timing is most often implemented when the trader expects the market to move in the direction they think very quickly after execution upon entering the market. In this case, the trader may execute the exit before his stop-loss is hit reducing losses even further if the market does not go in the directions thought.

This type of exit is very often employed by people utilizing a scalp trading methodology. Scalp traders, as a rule, are usually only looking for a couple of points before they quickly exit the trade. Scalp traders may very often execute large numbers of trades throughout the daily session.

The Trailing Stop

One other very popular exit strategy used among traders is the trailing stop. The trailing stop is dynamic and fluid, moving along with the market after a trader enters a position. This type of exit is very often employed by day trading futures traders.

Day trading is generally defined as entering a position at some point during the market session and exit is executed at some point before the daily session ends or not long after the session closes in after market hours. However, some day traders may enter and exit positions several times during the day.

Trailing stops are an excellent strategy to use mostly if the market initially begins to move in the trader’s favor. Depending on the trading system used, as the market continues to move in the predicted direction, the trader will automatically move his stop above his original stop loss reducing the potential loss should the market reduce.

Trailing stops are not a guarantee of profit but do reduce the potential of larger losses that would be suffered if the original stop loss was hit. Remember, a trading system should first be designed with emphasis on money management, or protection of capital rather than profitability. Traders that learn this concept are very often the ones that live to become successful veteran traders.

The trailing stop has the ability to help the trader gain maximum profits but the trader should also understand, the trailing stop will also give back some profits since it is trailing, which of course means once you gain profit’s the stop will move up behind the trader’s position.

However once the market reaches exhaustion, the market will pull back and the stop will be hit thus giving back some profit. This is the nature of the trailing stop. It will not get the trade out at the top but will however produce profitable results in most cases if market direction is predicted accurately.

The Mental Exit

One of the most utilized exit strategies by trading market participants is the psychological or “mental” exit. The mental stop depends entirely on the trader and the trader’s interpretation of the market. This exit strategy should only be used by traders that have the discipline and experience to determine when the best time to exit as market conditions dictate.

Maximum profits are the goal. Calling a top is one of the most difficult parts of futures trading or any other form of trading and seldom will a trader execute an exit at the top. However, mental stops are an excellent choice to maximize profits.

The best trading system are designed with simplicity in mind. Rather than focusing on optimizing a index futures trading system, understanding and simplicity should be the main focus. Simplification of a system does not mean only one exit strategy can be used.

You as the trader can have multiple exit strategies and keep them simple to understand and follow. System that are intricate and difficult seldom work since the trader often becomes overwhelmed with the massive amount of information and signals produced by a over-optimized system. Simplistic systems work by allowing the trader to employ multiple exits and still meet their trading objective.

Scaling Out Exits

One exit that should not be avoided although very often employed by inexperienced traders is the scaling out exit. This form of exit requires the trader buy multiple contracts and scale out of them as the market move.

If the trader will take the time to analyze this exit, he would realize how much more profitable he would be if held the entire position and exited fully. The purpose of designing a trading system is to maximize profits and reduce the amount of major account draw downs and losses.

If the system is designed properly, scaling out of positions should not be necessary since the system will produce the best result with a full position. Inexperienced index futures traders very often employ this strategy falsely believing they are successful when they are really robbing themselves of maximizing profits.

Trading takes a considerable amount of dedication and discipline as well innate competitive spirit, no matter what financial market is chosen. Index futures is probably the most fluid and volatile of all the financial markets which requires a well designed system for the market participant to be profitable index futures trading.


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