When a trade entered goes as planned, the next step is to exit the trade.
If you are following a trend following method such as crossing moving
averages, MACD signals, or Momentum, these indicators will also be you
trigger to exit.
Many methods will keep you in a stock either long or short. Other methods
will use one or more indicators just for exit, and another for entry.
Sometimes we do not discuss the exit as much as we should.
We know when we should exit if a trade goes bad, but how about the trade
that works out well. Usually, most people will use the same indicator or
pattern that initiated the set up to enter the trade.
For example, a MACD Buy would wait for a MACD Sell. A moving average
crossover, would wait for the averages to cross back.
It is certainly fine to use trailing stops or a different pattern or
indicator for exit.
The key here is to plan on closing a winning trade.
Let look at our chart below on Biogen, Inc.
(NASDAQ: BGEN).
On June 30, 2000, there was a very good MACD Buy signal on BGEN.
July 3, gave us a moving average cross over Buy and a breakout on July 5.
Any of these fine indicators would have put you in a winning trade.
Let’s look at a BGEN exit strategy using the MACD indicator.
When a stock gets overbought, the MACD can signal the turn nicely, just as
it did on entry.
MACD is starting to turn from a very extended overbought condition.
If BGEN has a down day Monday July 10, 2000, the MACD will signal an exit.
You should have your software set with the MACD indicator and when the
histogram drops below the signal line exit the trade.
A trader would have locked in a nice profit.
