How to Spot an Exit Point
Selling stocks or exiting positions is the far more complicated than buying stocks.
There are two contradicting consequences when you are selling stocks, either you are deciding how much profit your would earn or how much loss you would bear.
Besides, exiting the trade need swift and one time action.
The four techniques below are very simple but having value whenever the market trade against your trading plan.
Support/Resistance Support and resistance can be found at almost any time and on any chart and usually drawn as horizontal lines.
A support line is that price at which one may expect a considerable increase in the demand for a stock, or buying.
A resistance level is that price at which one may expect a considerable increase in supply, or selling.
Support and resistance exist because people have memories.
The longer the stock stayed at a certain price level, the stronger the role of that price level as support and resistance.
Buy stock when it have fallen at around the support level and sell it when stock hit resistance levels.
Channels/Envelopes Channel is two lines drawn parallel to the average value of data in its time window (the moving average).
Its upper line represents the maximum price of the stock to go and the lower line depicts the minimum price of the stock before it is bounced back up.
A well drawn channel must captures at least 95 percent of recent prices.
When you are in long position, you are expecting the price of the stock to go up until it touched the upper line and then you may sell the stock.
The triangle trading poin Mostly, the stock price is moving up and down, and therefore they shape just like a triangel with the apex (the top) and the base (the base).
Suppose you are in the bullish trend, the entry will be taken at around the apex and the exit point will be taken around the base.
Risk/Reward Ratio Before we buy and sell a stock, we should always calculate risk and reward ratio.
Make sure that potential reward is at least two or three parts greater than potential risk, or loss.
For example, suppose you buy stock at $20, and the previous high of that stock price is $23, so as to maintain risk to reward ratio for the trade is 1:3, then your exit point is at least $1 less than $20.
There are two contradicting consequences when you are selling stocks, either you are deciding how much profit your would earn or how much loss you would bear.
Besides, exiting the trade need swift and one time action.
The four techniques below are very simple but having value whenever the market trade against your trading plan.
Support/Resistance Support and resistance can be found at almost any time and on any chart and usually drawn as horizontal lines.
A support line is that price at which one may expect a considerable increase in the demand for a stock, or buying.
A resistance level is that price at which one may expect a considerable increase in supply, or selling.
Support and resistance exist because people have memories.
The longer the stock stayed at a certain price level, the stronger the role of that price level as support and resistance.
Buy stock when it have fallen at around the support level and sell it when stock hit resistance levels.
Channels/Envelopes Channel is two lines drawn parallel to the average value of data in its time window (the moving average).
Its upper line represents the maximum price of the stock to go and the lower line depicts the minimum price of the stock before it is bounced back up.
A well drawn channel must captures at least 95 percent of recent prices.
When you are in long position, you are expecting the price of the stock to go up until it touched the upper line and then you may sell the stock.
The triangle trading poin Mostly, the stock price is moving up and down, and therefore they shape just like a triangel with the apex (the top) and the base (the base).
Suppose you are in the bullish trend, the entry will be taken at around the apex and the exit point will be taken around the base.
Risk/Reward Ratio Before we buy and sell a stock, we should always calculate risk and reward ratio.
Make sure that potential reward is at least two or three parts greater than potential risk, or loss.
For example, suppose you buy stock at $20, and the previous high of that stock price is $23, so as to maintain risk to reward ratio for the trade is 1:3, then your exit point is at least $1 less than $20.