The key to any accomplished trader is to know the right exit time. Trade management is somewhat an art and analysis of knowing when to enter a trade, which most beginners fail to comprehend. Trade management also helps in identifying the right time to exit a swing.
One of the crucial points to enter swing trading is to have a strong trading plan based on multiple factors, including time, profit target, opposite setup, etc. It is safe to assume a trader has some expectations before they exit, hence it’s better to hold a swing until those expectations are met.
Before we get into constituting an iron-clad trading plan, it’s better to understand the basic factors of Swing trade.
What is Swing Trade?
Swing trade generally focuses on a single price move instead of analyzing a cluster of ups and downs. The goal is to stay on that one price swing and pull out before hitting any opposing swings. However, with experience, it gets easier to figure out when a price swing is going to end. It is a general pattern to see traders enter at the beginning of a swing and exit just in time from a pullback.
The typical nature of swing trading is to simply avoid any opposite pullbacks, hence we see swing traders going in the direction of the swing. Trends can vary in different patterns from up to downtrend or even a side move. Although following a certain trend can differ to a certain market. For instance, it is highly suggested to follow the upswing in the stock market due to the lack of potential in the downtrend.
Duration to hold a Swing Trade
It’s no surprise that a price tends to swing daily, lasting from a few days to a couple of weeks. So it’s crucial to give a good breather in that time frame. The game is yours as long as you keep a firm trading plan in mind and understand that the swings depend heavily on the particular market conditions.
Aim to exit with the results you expect or whatever the best you can get. So let’s say, if the trade shows signs of opposite swings, it would be pointless to hold your trade beyond that time. There aren’t enough words to stipulate the importance of a trading plan and include certain mechanisms that determine a strong exit strategy.
Which exit method to use?
There are quite a few methods that can help you decide when to close your trade -
This method is loosely based on the opposing signal in the trend, contradictory to what may have led you into the trade. The opposing swing translates the change in the price in a new swing. In swing trade, such a situation demands an immediate exit to preserve maximum profit. In a trending market, however, this could be taken as a pullback, which traders can afford to wait through, the same is not recommended in swing trade.
The time-based method works best when integrated with other strategies. Given that the trade is still on and you are not already out of the market with any other exit strategy, just fix a time where you’ll close your trade, no matter what.
Trailing stop Loss
As the name suggests, this method focuses on trailing on your profit with the price going in your favor. Results can be attained either by manual or automated trailing.
Stop at Loss and Profit Target
This method is famously known for determining your exit in advance when you are at a stop loss and when to close the trade before the profit target faces resistance. For beginners, setting a stop loss and profit target is highly advisable. This method helps the trader to close at the stop loss target or at the profit target they set.
While all these methods can work wonders, it’s up to you to figure out which one suits you best according to your strategy. It is better to test them in demo trading, which will help implement your strategies effectively.