Exit Strategy Definition
The Exit Strategy is a well-defined plan specifying the conditions to get out of a trade.
For a long trade, exiting means selling the stock. For a short trade, exiting means buying a stock.
Extra Insight:
Having a strategy for exit allows a trader to plan with a cool head rather than getting caught up in the heat of the moment. Backtesting the exit strategy gives a trader insight and confidence in the plan.
Most traders have two purposes for exiting: taking profits and cutting losses.
Sometimes both ends are served by one exit order, such as a trailing stop. Other times, they are two distinct orders, such as a fixed stop loss and a target limit order.
A third goal of an exit strategy may be the efficient use of capital. In that case, the exit strategy may have rules to exit a trade that isn’t going anywhere in order to redeploy the resources elsewhere.
Click here for BackTesting Reports on Exit Strategies
(Backtesting Blog is an Amazon Associate
Updated 11/12/08.
October 29th, 2008 Filed under GlossaryTags: backtesting, exit, goals, loss, stop, strategy, trading
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