Now that we have identified the opportunity and the method for entry, it is time to set up the exits. The overall target will be determined based on each opportunity. For Elliott Wave opportunities the target will be set based on Fibonacci clusters.
2 Exits for when you are right or when you are wrong.
The exits are by my opinion the most important part of the trade and should be treated with utmost respect. I enter a trade based on the position size chosen beforehand, set a stop loss exit at previous swing high/low and then divide the whole position in two. One short term and one long term. Why? First, the short term target is a 50% – 61.8% level from the initial 100% target. Because we want to make sure we take a small profit from it and cover the rest by moving the Stop Loss to the breakeven price level. We won`t be right all the time and so we need to make sure we protect ourselves once we are in. Protecting capital, managing risk are key elements here.
So why did I set a two level for the short term target 50% and 61.8%? Well we do not get out once the market reaches our target, but rather set a 1 Bar High/Low rule where we let the market get us out once that has been fulfilled. For every new bar we trail the low or high and if that has been broken we get. We let the market get us out. The market dictates everything, entries , exits, opportunities.. etc.
So once we are out at the short term target we move the Stop Loss to breakeven and let the other half of the position run till it reaches the long term target and then follow the 1 Bar High/Low rule again.
The profit target I like to be at a 1:3 or 1:2 Risk Reward Ratio. I use this also as a filter for my trades. If any opportunities are below this RR then I will not take it.
Trader’s Mindset:
You’ve analyzed the market, entered the trade, and set up your exits. Your work is done no matter what the market tells you! Don’t listen to the voices trying to sabotage your hard work. Moving your stop is a mistake, closing out the trade early is a mistake, babysitting your trade is a mistake. More and better analysis is not the solution to your trading difficulties or lack of consistent results. Your attitude and state of mind WILL determine your results.
A trade is a trade is a trade, and only putting many of them together can you begin to see what is working and what isn’t. Executing each one correctly is your job.