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: The hunt for 0.7000 kicks in
AUD/USD finally cleared the key 0.6800 barrier, up for the fourth session in a row on the back of the persistent downward momentum in the Greenback in the wake of the Fed’s rate cut.
EUR/USD maintains its constructive tone and targets 1.1200
EUR/USD managed to add to Wednesday’s gains and climbed to the area of weekly tops around 1.1180 following further weakness in the US Dollar as investors continued to factor in the likelihood of extra rate cuts in the next few months.
Gold maintains the upward pressure near $2,600
Following a pullback in the early American session, Gold regains its traction and trades decisively higher on the day at around $2,580. The 10-year US Treasury bond yield retreats toward 3.7%, supporting XAU/USD in the Fed aftermath.
XRP eyes gains as Ripple gears up for stablecoin launch, Grayscale XRP Trust notes rising NAV
Ripple (XRP) gained 2.3% since the start of the week. The altcoin’s gains are likely powered by key market movers that include Ripple USD (RUSD) stablecoin, Grayscale XRP Trust performance and the demand for the altcoin among institutional investors.
BoE expected to keep interest rate unchanged at 5% as price pressures persist
After a close call in August, the Bank of England’s September interest rate decision is keenly awaited for fresh cues on the bank’s future policy action and the pace of its bond sales.
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