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
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.
Let's look at our chart below on Qualcomm, Inc.
(NASDAQ: QCOM).
QCOM was one of the stars last year, but has been dropping most of this
year.
On July 11, 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 QCOM started rising.
QCOM has moved from a low of 52 and the question now for a trader is to
focus on exit.
Traders tend to exit to prematurely when they have a winner and stay too
long with losers.
A trader who jumped in on July 11 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.
Yesterday, we looked at CMGI and the stock never rolled over and by using
the rules set was able to ride CMGI up another 2 points today. A trader
would just move his stop up and let the market take him out of the trade.
Let’s work on a plan for exit of QCOM.
Although the MACD indicator is getting overbought, the moving average method
has us solidly long this stock.
QCOM is also at a previous resistance.
Will QCOM breakout of fail here?
A plan to let profits run, but exit if the stock shows weakness will allow
the best of both worlds.
I would put a Sell stop in at 67 �.
If QCOM drops, a profitable trade is made. If QCOM breaks 71 tomorrow, then
just ride the wave up! And move your stop up.
