You can read part 1 at : http://www.mcxniftytips.com/ten-best-ways-to-quit-a-trade-part-1/
Profit targets are mostly used for short-term strategies and for reversal trading systems. The issue with using a profit target is that it is all too simple to restrict your potential gains. Profit gains do not job when following trends since the full principle behind trend following is to let your victors run, and you can never understand how long a trend will continue for.
Investors who have a strong grasp of principal value can calculate what they think is the fair worth price of a stock and then exit whenever the stock price meets, or moves beyond that stage. This is not a simple job since the worth of a firm will change as its stock price changes. All sorts of reasons like investor sentiment will also have an impact.
Using a time-based exit can be a helpful for traders since markets watch different patterns depending on the time.
For instance, stock market volume picks up during the overseas market session then dies down after hours. Some day trading plans are therefore designed to arrest moves in the after hours trades.
Similarly, since firms release earnings once every 3 months, some plans seem to do well with 3 month holding periods.
UK Small cap professional Simon Thompson is known for making worth plays and he often advocates an idea called as top slicing. Top slicing is where you have a perfect winning position in a stock but have spotted a new chance elsewhere.
The idea involves closing 2/3 of the trade and attaching a ten percent trailing stop to the rest. This make sure you have some money left in play, in case the stock keeps going top, but it also liquidates some capital which you can put into a fresh investment.
Warren Buffet, the globe biggest investors takes a fairly special approach to exiting his stock traders. Buffett famously said that “when we own parts of stunning businesses with stunning management, our preferred holding period is forever.”
It just goes to present that when you pick the perfect stock in the initial place, your value exit point becomes less of a problem – a big position to be in.
As you might have guessed, there are numerous ways to quit a trade. As usual, it pays to take a quantitative technique where possible and tests which kinds of exits, and which values, work the top for your own trading personality and strategy.