Thursday, May 31, 2012
Exiting and Adding on
In general, I try to exit when my trade has shown strength and more correctly, undeserved gains. When I'm surprised by the strength of the move, its a good sign that I'm better off exiting. Therefore bars like b25 and b72 which shock the trader with good fortune are often signs of being exit candidates. When the move is nacent and especially one-legged as in b25, chances are good that you can expect another leg or even a sustained trend after a deep pullback. A large bar after a sustained move such as b72 on the other hand is most likely a sign that the end is near.
The first pullback (b29), the first two legged pullback (b14) and the first trendline break (b46-53) but only after a strong move (b22-46) are usually good candidates for continuation trades. Of these, The first pullback after W or W1P (b29) is often an excellent candidate for adding on even if all your targets have not yet been met.
Any small bar with a strong close in a trend (b24, 29, 71) can be used for adding on as long as they are not inside bars (b39) or doji (b45).
Some traders add on any strong trend bar (b2,3,4). I avoid this because a pullback can come at anytime and you may not be able to hold through for example, if you bought b35 or b55. The theoretical stop for adding on a trend bar is the other end of the bar so its best to do it on a small bar.