How to Exit a Stock Trade at the Correct Technical Level

Swing Trading Speculative Runs

Most of the time Retail Traders are focused on finding stocks to trade but spend scant time on assessing risk, proper stop loss placement, trailing profit stops, and determining when to exit the trade especially as a stock goes ballistic.

Since we are in the final stages of a Great Bull Market that has been underway since March of 2009, it is imperative that all Retail Traders learn to exit a speculative run at the correct time to insure the highs profits possible.

Many traders have been bludgeoned by the slower paced market activity over the past few years and so they have abandoned the normal Swing Style Trade rules for Stocks, Exchange Traded Funds ETFS, and Option premium trading. 

Instead of holding for a nice 3-20 point gain, the hesitant Retail Trader who has taken plenty of losses over the years takes 10 cents or 20 cents and believes that is the best they can do. However, we are now in the speculative market of an aging Bull. There are hundreds of thousands of new investors flocking to the Stock Market to buy stocks because they believe the Bull Market is just starting, pulling pennies instead of dollars which is not the right strategy to use.

This is the time when Retail Traders can make significantly higher profits, and learn how to earn the kind of income most only dream about. Understanding how to exit a Stock Trade at the correct technical level requires going back to the foundation rules of expert Swing Trading. 

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Swing Trading can be for Stocks or Options, and both employ the same technical setups and patterns.

See chart #1 example below which is a pricey stock that many Retail Traders would choose to trade as an Option. 

chart example with compression entry patterns with the 'buy into strength' - technitrader
The compression entry pattern with the “buy into strength” entry signal, and order type positioned either a stock buy or option premium trade buy to open the order. All indicators confirmed the presence of Dark Pools and Professional Traders, as well as the predatory and opportunist Deep Pockets at that time. 

Then entry triggered as the stock moved into the preset order for “buy into strength” and set the trade up for a very low risk entry with a high profit potential. The weekly chart view is used to identify resistance areas where the technically proficient Professional Traders would start taking profits. Based on those levels target gain potential is set, and sell levels are determined before the stock moves which is the starting point of how to exit a Stock Trade at the correct technical level. See chart example #2 below.
chart example with very low risk entry and high profit potential - technitrader
There is a bottom completion level, which the stock has moved above and sustained around $170. This offers support for an initial stop loss. The next resistance is a Monthly High and due to the momentum of the market, this is calculated as a moderate resistance at $196-$200 and thus the appropriate trailing profit stop OR exit can be made as the stock moves into that area.

The next level is at $206-$210. This is a Yearly High and is calculated based on the momentum in the market as moderately strong. The final resistance is the final target gain. After that the stock is at new All-Time Highs in an extreme speculative mode. Therefore calculations for exiting the trade must include the risk factors of several Market Participant Groups taking profits faster.

At new highs High Frequency Trader risk of gap downs or sudden reversal patterns increases exponentially, and the exit or hold analysis needs to factor this into the equation of risk levels.

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Summary

This stock behaved precisely as technical resistance levels indicated, and as the stock Quantity and Accumulation/Distribution/Rotation Indicators confirmed. When trading a Swing Style momentum or velocity speculative run, it is critical to evaluate each level of resistance in relation to how the trend has developed. This allows the Retail Trader to plan the exit for maximum profitability.

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Trade Wisely,
Martha Stokes CMT
TechniTrader technical analysis using a stockcharts.com chart, courtesy of Stockcharts.com

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