Knowing when to get in is important. Knowing when to get out is even more important. This lesson covers the main entry and exit strategies used by professional traders.
Entry Strategies
1. Breakout Entry
Wait for price to close above resistance (or below support) with above-average volume. Enter on the close or on the next candle. This is aggressive — you are buying strength. The risk is false breakouts, so always use a stop loss just inside the broken level.
2. Pullback Entry
After a breakout, price often comes back to retest the broken level (old resistance becomes new support). Wait for this pullback and enter on a bullish reversal candle. This gives you a better price and a tighter stop loss. The risk is that the pullback turns into a full reversal and the breakout fails.
3. Reversal Entry
Enter against the current trend at a key support or resistance level when there are clear reversal signals (e.g., double bottom, bullish engulfing at major support, RSI divergence). Higher risk, higher reward.
Key Concept
Pullback entries are generally best for beginners. You get a better price, a clearer stop loss level, and confirmation that the trend is still intact. Breakout entries are exciting but result in more false signals. Reversal entries require the most experience.
Exit Strategies
1. Fixed Target
Set a price target before entering (e.g., the next resistance level, or 2x your risk). When price hits it, you are out. Simple, mechanical, removes greed.
2. Stop Loss Hit
Your predetermined maximum loss. When it is hit, the trade is over. No exceptions. No "just a bit more room." Your stop was placed at a level where your idea is proven wrong.
3. Trailing Stop
As the trade moves in your favour, you move your stop loss up to lock in profits. For example, trail your stop below each new higher low in an uptrend. This lets winners run while protecting your gains.
4. Time-Based Exit
If a trade has not moved in your direction within a set time (e.g., 5 days), close it. Your capital is being used unproductively. Move on to a better opportunity.
Partial Profit Taking
Example
You enter a trade with 500 shares. When the price reaches your first target (1:1 risk-reward), sell 250 shares and move your stop loss to break-even on the remaining 250. You have now locked in some profit and have a "free trade" — the remaining position can only make money or break even. Let the rest run with a trailing stop.
Warning
Never move your stop loss further away from your entry.This is the cardinal sin. If you placed your stop at £4.80 and the price is at £4.82, moving your stop to £4.70 to give it "more room" is just increasing your risk. If your original stop level was wrong, the trade setup was wrong. Take the loss and move on.
Risk Disclaimer: Trading financial markets involves significant risk of loss. The content on this page is for educational purposes only and does not constitute financial advice. Past performance is not indicative of future results. You should not trade with money you cannot afford to lose. 70-80% of retail investor accounts lose money when trading CFDs and spread bets. Consider whether you understand how these products work and whether you can afford the high risk of losing your money.