As prices in the Indian equity markets approach the previous highs set in 2010, there are a lot of stocks that are making 52-week or even all-time highs. As traders, we know that we should participate in the dominant trend but base our exits on supply and demand zones. But where are we supposed to exit when we do not have a zone as a signal?
Fortunately, there are several techniques that we can use to identify probable exit point to protect our profits. Remember, none of these are as strong as actual supply zones but they do seem to offer higher probability targets when we are breaking out into unknown territory.
The first method is one of the easiest. Before prices break to new highs, it often pulls back to gain momentum. If you measure the depth of the pullback and then project that same length at the breakout, it will often mark the area of the first correction after the breakout.
The next method offers multiple targets and uses a tool that is available on most software platforms. The Fibonacci extension tool measures the impulse prior to the breakout and then projects certain measurements of that impulse from the recent lows. By doing this, you can often identify the area where the breakout impulse will stall.
The last method is to simply wait for a signal that the trend has been broken. Moving averages offer a summary of the current trend and the mean price. In a bullish trend, prices should move away from an average and then snap back to it but not close below the moving average. This is called reversion to the mean. If price breaks the moving average by closing below it, then the trend has likely ended.
There are two problems with this technique. First, you will never exit at the top of the move since we wait for a pullback to trigger the exit. That is fine though as we can still participate and profit from the majority of the move.
Secondly, is the choice of the moving average period. We need to select a period or length of the moving average that price will respect for the trend. Stocks and timeframes differ and one moving average may not work for all securities. There are some advanced techniques for finding the best length but I will save that for discussion in our courses.
So if the price of your security breaks to new highs, you might now be better prepared to take your profits at the right time rather than trying to guess. To learn more, contact your local Online Trading Academy center and enroll in the Professional Trader course today.
Neither Freedom Management Partners nor any of its personnel are registered broker-dealers or investment advisers. I will mention that I consider certain securities or positions to be good candidates for the types of strategies we are discussing or illustrating. Because I consider the securities or positions appropriate to the discussion or for illustration purposes does not mean that I am telling you to trade the strategies or securities. Keep in mind that we are not providing you with recommendations or personalized advice about your trading activities. The information we are providing is not tailored to any individual. Any mention of a particular security is not a recommendation to buy, sell, or hold that or any other security or a suggestion that it is suitable for any specific person. Keep in mind that all trading involves a risk of loss, and this will always be the situation, regardless of whether we are discussing strategies that are intended to limit risk. Also, Freedom Management Partners’ personnel are not subject to trading restrictions. I and others at Freedom Management Partners could have a position in a security or initiate a position in a security at any time.
Editors’ Picks
AUD/USD recovers further toward 0.6800 on risk-recovery
AUD/USD extends recovery toward 0.6800 in Asian trading on Thursday, despite mixed Australian employment data. The Aussie cheers a return of risk appetite, which weighs on the post-Fed US Dollar recovery. All eyes now remain on US economic data for fresh impetus.
USD.JPY reverses sharply from 144.00, as US Dollar recovery fizzles
USD/JPY is attacking 143.00 in Thursday's Asian session, reversing sharply from 144.00. The pair pares back gains in tandem with the US Dollar, as the latter's post-Fed recovery falters due to a rebound in risk sentiment. The focus is next on the US data due later today and Friday's BoJ decision.
Gold price regains positive traction amid a modest USD pullback from one-week high
Gold price attracts some dip-buying during the Asian session on Thursday and seems to have stalled its retracement slide from the $2,600 mark, or a fresh all-time peak touched the previous day. The US dollar trims a part of its intraday gains to a one-week high, which turns out to be a key factor lending support to the commodity.
Crypto leaders and Congress blast SEC over crypto regulations
In a meeting on Wednesday, several crypto leaders and congress members debunked the Securities and Exchange Commission's harsh regulatory approach toward the crypto industry.
Australian Unemployment Rate expected to hold steady at 4.2% in August
The Australian Bureau of Statistics will release the monthly employment report at 1:30 GMT on Thursday. The country is expected to have added 25K new positions in August, while the Unemployment Rate is foreseen to remain steady at 4.2%.
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