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2002issue C091-2

Construct the stay-or-flatten decision before entry

Exit choices come after a position is already open, so fear and greed make them harder to carry out than unused entries. Exit construction writes a stop-loss, a time stop, and a trailing exit before entry so stay, scale, and flatten actions form one testable procedure.

  • Exit choices are made after a position is already open, so fear and greed make them harder to carry out than unused entries.
  • A skipped entry is only a missed chance, while a skipped exit can shrink the trading account.
  • A constructed exit is expected to bound losing trades promptly while still leaving room for favorable trades to develop.
  • Exit timing should be decided before entry, because leaving too soon can forgo remaining favorable movement and staying too long can turn gains into losses.
Entries in this reading3 entries
Time stop6 readingsCurrent trackTrailing exit18 readingsStop-loss order144 readings

Why exits are harder than unused entries

Exit choices are made after a position is already open, so fear and greed make them harder to carry out than unused entries. A skipped entry is only a missed chance, while a skipped exit can shrink the trading account.

What exit construction is for

Exit construction is the work of choosing and combining leave rules before entry so stay, scale, and flatten actions form one testable procedure. A constructed exit is expected to bound losing trades promptly while still leaving room for favorable trades to develop.

A more complete exit design uses several exit types fitted to the current market setting and the trader's risk tolerance.

A stop-loss, a time stop, and a trailing exit

A stop-loss is a standing adverse-move limit, usually set as a maximum acceptable loss, that remains in force for the life of the position. A money-management stop-loss stays in force for the life of the trade and closes at a stated amount of adverse movement, though gaps or limit moves can produce a larger loss than that amount. Stops set too close tend to exit too often, while stops set too far accept extra loss.

A time stop is a calendar or bar-count limit that closes the position after a stated number of bars or days, whether the trade is ahead or behind.

A trailing exit is an adjustable protective level moved with a favorable trend so a reversal can flatten the position while keeping part of the unrealized gain.

Decide exit timing before entry

The stay-or-flatten decision is the daily choice, once a position is open, to keep the trade or close it under the prewritten exit rules. Exit timing should be decided before entry, because leaving too soon can forgo remaining favorable movement and staying too long can turn gains into losses.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
9 of 18 in the Trailing exit track
20061-3 pp.Next on Trailing exitAudit the stop, trail, and risk-reward stack as one procedureA stop-loss belongs on the symbol's ordinary session range and on the chart's entry-exit sequence, not on a fear number the market will not support.
All readings on this track · 18 readings
  1. 1988Constructing a mechanical trend system with independent trailing exits
  2. 1991Write a staged RSI exit book with trailing stops
  3. 1993Evaluating filter-trigger trailing exits after breakouts
  4. 1995Weekly-close breakout entry and trailing exit in Eurodollars
  5. 1996Evaluating moving-average turn entries and slope exits
  6. 1997Precommit an equity-risk cap and a profit-retracement exit
  7. 1998Exit stops before entries
  8. 1998Exit rules evaluated with a fixed random entry
  9. 2002Construct the stay-or-flatten decision before entry
  10. 2006Audit the stop, trail, and risk-reward stack as one procedure
  11. 2007Building a momentum system with relative strength and trailing exits
  12. 2013When buy and hold needs a sell rule
  13. 2013A mechanical trend toolkit that turns screens into one entry-exit procedure
  14. 2014Is a two-period relative strength index, a channel breakout, and a trailing exit one long-only procedure?
  15. 2016Trend-aligned option entries and trailing exits
  16. 2017Monthly three-black candles as a trailing exit
  17. 2018Evaluating profit-taking and reentry in trend following
  18. 2020Treat the zigzag threshold as a volatility-scaled construction variable
By fieldEntry and exit rules206 readingsBy year200284 readings
All 18 readings tagged Trailing exit
Also on Trailing exit5 readings
1998Exit rules evaluated with a fixed random entryTime stop1992Evaluating maximum-adverse-excursion stop reversals with short time stopsTime stop1985A serial-dependence window from signed price transitionsTime stop1991Opening gap fades bounded by excursion and time stopsTime stop2005Write a moving-average pullback as one procedureTime stop