How to get out of the market at the right time
Knowing when to exit a trade is just as crucial as knowing when to enter. Getting out at the right time can make the difference between a profitable trade and a losing one. It’s about more than just having an exit strategy; it’s about tailoring that exit to match your entry point and the specific market conditions you’re dealing with.
In this post, we’ll walk you through 13 essential exit strategies for mean-reversion trades. Whether you're trading forex, stocks, or commodities, these strategies will help you lock in profits and minimize losses. Let's dive in and discover how to customize your exits to enhance your mean-reversion strategies.
1. Close is Highest Five-Day Close
When the closing price reaches the highest close in the past five days, it can indicate a short-term peak. Exiting at this point helps capture profits before a potential pullback.
2. Close Crosses Over MA5
Selling when the closing price crosses above the 5-day moving average (MA5) indicates that the price has moved back to its short-term average. This exit strategy allows you to lock in profits as the price reverts to the mean, taking advantage of the natural price correction.
3. Three Bullish Bars in a Row
When there are three consecutive bullish bars (candlesticks) on the chart, it indicates strong upward momentum. Exiting after this pattern can help lock in profits before the momentum fades.
4. IBS is More Than 0.9
The Internal Bar Strength (IBS) indicator measures the position of the close within the day’s range. An IBS value over 0.9 suggests overbought conditions, making it a good exit signal.
5. Close is Higher Than Typical Price
The typical price is the average of the high, low, and close. Exiting when the close is higher than the typical price indicates that the price has moved significantly above its average level.
6. RSI2 Crosses Over 90
The RSI2 (Relative Strength Index with a 2-day period) crossing above 90 suggests overbought conditions. This exit strategy helps to capture profits before a potential downward correction.
7. Close Over Yesterday’s High
When the closing price is higher than the previous day’s high, it indicates strong bullish sentiment. Exiting at this point can help lock in gains from a short-term price surge.
8. Close Hits Upper Bollinger Band
When the closing price hits or exceeds the upper Bollinger Band, it signals that the asset is overbought. This exit strategy helps to lock in profits before a potential pullback to the mean.
9. Stochastic Oscillator Above 80
When the Stochastic Oscillator rises above 80, it indicates overbought conditions. Exiting at this level can help capture gains before a possible reversal.
10. MACD Histogram Turns Negative
The MACD histogram turning negative suggests a shift in momentum. Using this as an exit signal can help traders get out before a potential downturn in price.
11. Williams %R Exceeds -10
The Williams %R indicator measures overbought and oversold levels. When it exceeds -10, it signals overbought conditions, making it a good point to exit a mean-reversion trade.
12. ATR Price Target
The Average True Range (ATR) can be used to set a price target by adding a multiple of 1.5 times the ATR to the entry price. Exiting at this target ensures that you capture profits while considering the asset’s volatility and maintaining a favorable risk/reward ratio.
13. Volume Spike
A significant spike in volume, defined as a 150% increase above the 20-day moving average volume, can indicate a climax in buying pressure. Exiting on such a volume spike helps lock in profits before a potential reversal driven by market exhaustion.
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