The Stock-Compass.com Trading System

Trade Exit

As soon as you execute a trade you must put in a protective stop. If you're long the market put your stop at a point under where you bought so as to limit your risk if the market goes against you. For a short position, you must place your stop over where you entered.

Once your trade turns profitable you can protect at least part of that gain by adjusting your protective stop so that it's closer to the market. One of the best ways to do that is by moving the stop so that it's one or two pivots behind the market. Here's an example:

Moving the protective stop to lock in your profits is only part of what you must do during an open trade. Additionally, you must always watch for signs the market is turning against you. The chart above shows two signs of strength coming in at the same time making it time to take profits and clover the short.

The two vertical lines on the chart show a two-bar reversal on much higher than average volume. This strongly suggests strength and was confirmed the next day when the bearish trend line was broken.