When a trade entered goes as planed, 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
trig
ger 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.
Let look at our chart below on CMGI, Inc.
(NASDAQ: CMGI).
CMGI has been struggling over the past few weeks.
On July 12, from a very oversold condition as shown by the MACD indicator
falling so far below the zero line, and the moving average crossover being in
a Sell condition since 47, CMGI started rising.
CMGI jumped from 36 to 47 last week.
A trader who jumped in on July 12 has some nice gains.
The question now is how to time an exit to maintain profits or avoid another
down move.
Pattern recognition and technical indicator that are used in this column can
help.
The CMGI MACD indicator is rolling over and looks ready to give a Sell signal,
this time from a very overbought condition as indicated by the amount above
the zero line.
The moving averages are starting to narrow the spread between them.
Will profit takers move in again on Monday?
By planning both entry and exit on a trade, the plan will decide the next
move.
If long CMGI, I would place a Sell at 45 �. If CMGI opens up Monday, let it
run and adjust the exit up. If the stock starts to fall, the 45 � gets a
trader out with a profit and the trader moves on to the next trade.
An Aggressive trader may want to consider a Short at 45 �.
If Shorted at 45 �, I would place a stop at 47 �.
