# Exit Strategies



## Fleeta (11 January 2005)

How do you guys go about setting an exit strategy? For me its all about time, cos I want to be in for 12 months to get CGT discount. Its worth it. For example, in July 03 - I bought AWC for $4.15 - 6 months later it was $6.50, but I didn't want to get out. By the time I got to 12 months ownership, it was down to $5.20, but I hung around til December 04 and got out at $5.94.

Now I made a much higher after tax gain by getting out at $5.94 in Dec 04 than I would have if I got out at $6.50 in December 03. However, one aspect that you guys have alerted me to is 'opportunity cost'. What's a tax problem when you can make more money elsewhere in the market.

And now to my new dilemma. Bought VSL in Oct 04 for 91c. Now $1.47. When do I sell? Do I set a stop at $1.20? Or should I stick with the time thing and regardless sell after Sept 05.

I guess the CGT dilemma isn't an issue if you are a share trader for tax purposes, but for the investors it is and the question is, how valuable is it and what kind of hit do you risk taking just to get it?


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## tech/a (12 January 2005)

Fleeta 
I havent the time now as exits is a very important topic.Ill post my thoughts which are really only relative to me ,for interest soon.


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## clowboy (12 January 2005)

Fleeta,   MHO

Investment decsions should be made independant to tax benifiets.

By my calculations you made an extra 4% by waiting for the CGT exemption.
This is based on a 50% tax rate.
$6.5/$4.15 = 57% profit (minus 50% tax) = 28.5% PROFIT
$5.94/$4.15 = 43% profit (minus 25% tax (50 CGT rebate) = 32.25% profit.
Anulised your profits become 57% and 21.5%.

In terms of "opportunity cost" we will asume you can predict the market then in that time you could have bought at $4.15 sold at $6.50 bout at $5.20 and sold at $5.94.

Bearing in mind as well that tax isnt payable until your return is due so if your cashflow is good you could have bought in the second time with the full 57% profit as well as your initial capital further compounding returns.

Just my 2 cents hope it helps


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## clowboy (12 January 2005)

of course it goes without saying that you should speak to an accountant/finacial advisor to maximise your avaliable tax benifiets.


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## markrmau (12 January 2005)

Don't forget that you are saying this in hindsight (or did you suspect it was overvalued?). 

They could have announced some fantastic profit upgrade and you would not even be asking this question - you would be at the pub celebrating your good fortune. Or they could have gone the way of ION and you would be at the pub kicking yourself for not getting out soon enough.

The best advice I heard was to set a wide trailing stop (though maybe this is not good advice if things now get bearish...)


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## Fleeta (12 January 2005)

Please don't mention the 'I' word as I am still prone to violent outbursts when I think of it...

You raise very valid points and I agree that tax decisions and investment decisions should be made independant, and while I did think AWC would only go down from Dec 03 - I had a feeling it would be less of a fall than the CGT I would have to pay and I was (just) right.

So when you talk about a trailing stop, what kind of stop do I put on VSL, considering I would love to hang around til October 05 to get the CGT benefit.


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## markrmau (12 January 2005)

Fleeta said:
			
		

> So when you talk about a trailing stop, what kind of stop do I put on VSL, considering I would love to hang around til October 05 to get the CGT benefit.



In Tech/A's trade system, he used falling below 120 day moving average and backtesting  has  shown this to be successful for the companies and timeframes that were backtested. I guess we'll know in Oct if this exit point is valid for this company and this timeframe. 

If you had applied this AWC how would you have been after CGT assuming top marginal rate?

Usual caveats about chatroom advice etc.


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## RichKid (12 January 2005)

I think of CGT as a secondary issue when I trade but certainly I do keep it in mind as it is important. Most of my trades are short term but I'll check my trailing stop loss etc first and look at the technicals. I was in two minds at one stage as to whether I should hold and rough it through a sp downturn in the 'hope' that it would come back up and preserve gains (and CGT) discount but I've decided against it and now have a different plan as worrying about CGT was confusing my thinking. Instead, I'll follow my stops and re-enter if need be. I love to cut losses fast so I really don't have much of a choice once I set a stop.

It all depends on each persons tax situation and trading method I suppose, horses for courses. But then I'm not an expert so maybe best to get help from Tech or others who may hold stocks for a year on a frequent basis.


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## tech/a (12 January 2005)

I guess I look at exits a little differently to most.
In the long term trading systems that I trade its not un common to have trades last over 12 mths.UTB TOL QBE all are over from memory.
But exits are designed to be taken so if its hit regardless of the tax implications its taken.The exit is tested to give a result which we have ben able to quantify through rigorous testing and if we alter it then we are altering the possible result of the method.Not what a systems trader is trying to do.

*This brings me to the discussion of exits in general.
If all traders spent as long looking for a great exit methodology as they do for the perfect entry we would have a lot more successful traders.
Close stops mean you can be aggressive and have shorter exits.*

Im always amused by the fact that we all buy stocks and hold them when they reverse.I think this often happens because we dont often buy *INTO * Momentum.If we did then we could set very close stops have greater reward to risk and be a lot more profitable.If Im trading shorter term thats what Id want.

Longer term Im expecting the stock to basically go on with it for a long period.
The market will tell me when value according to investors has met an agreement.This is seen in a flat period.This could be a few hrs in a daytraders time frame to a few weeks in a medium term traders to around 3 mths in my veiw.About 25% of average holding time.Buyers and sellers agree price is about right---its a stage 3 in the cycle of a stock.Until it moves positive or negative we can only guess at wether its Accumulation OR Distribution.If we trade a portfolio holding a few of these is no big problem but hold them long enough and they could cause you a flat time.Bad if thats your income.Only testing will give you a period which suits your timeframe.This is known as a Flat time exit.


Then there is the TRAILING STOP.
Ive seen this dominate the method and it becomes THE EXIT.
If the average return on your trading method is 7 times risk and your at 50 times then set a trailing stop but give it some room---dont all of a sudden turn it into a short term trade.It must clearly tell you that the trend has failed or stopped and taking the stop now will lock in more profit than letting it go to the stop or save you from a shock fall.

Now my longterm stop is a 180day EMA of the LOW.Thats just a stop not "THE" stop of stops.It gives the best return on the method and best risk reward ratio.Ive tried many but this comes out the best.Trial and error.
Again this is why I advocate knowing your NUMBERS ----particularly if you trade in a discretionary manner----if you dont(Know your numbers) how do you know your going to come out on top after 50 trades?

*IF Trading in a discretionary manner*.----- Ive come to the conclusion that you really must give yourself the opportunity to take the greatest profit you can on short term trades.Expect to be stopped out often at a tick or so.Expect to re enter when a trade fails then turns (Your timing was a bit out but you didnt know that when you stopped out!).Every now and again youll pull a 100-200% move and have heaps of 1 and 2% losses---nett very profitable.
If you want more wins and less profit to gain an overall nett gain then I dont think you can do this trading discretionary.You could find a way to do it mechanically and those that trade this way DO!


*The perfect stop.*
Wish I knew what that is! If it gives you a positive expectancy and in real trading makes you a good return----then Id say its perfect for that way of trading!The best there is---probably not I keep looking and testing.
(I actually found one that is better but thats in the second method I trade)
as a hint its based on Price nothing to do with oscillators or Indicators.).
If anyone has an exit Idea please post it up.

tech


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## Bobby (3 April 2006)

tech/a said:
			
		

> I guess I look at exits a little differently to most.
> In the long term trading systems that I trade its not un common to have trades last over 12 mths.UTB TOL QBE all are over from memory.
> But exits are designed to be taken so if its hit regardless of the tax implications its taken.The exit is tested to give a result which we have ben able to quantify through rigorous testing and if we alter it then we are altering the possible result of the method.Not what a systems trader is trying to do.
> 
> ...



I was about to start a thread on Exit Strategies & did a search,  but found this !
I liked what Tech  stated,  especially flat time exit !,  what do you think ?.

Now moving on to another type of exit-. 

Sometime  in the future ( not soon ) there will be another crash.
As always there will be warnings to be seen  before this.
My own liquidation of all stocks I hold will depend on these warnings, as I can only move on past historical warning examples, can anyone come up with anything new ?.

Bob.


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## It's Snake Pliskin (3 April 2006)

> How do you guys go about setting an exit strategy? For me its all about time, cos I want to be in for 12 months to get CGT discount. Its worth it.




Hi fleeta,
Personally I don`t believe anyone should sell just for CGT implications., although it does have some benefits that I am not qualified to talk about.



> However, one aspect that you guys have alerted me to is 'opportunity cost'. What's a tax problem when you can make more money elsewhere in the market.




Yes, how about a profit maximisation strategy by looking for opportunities as opposed to a tax minimisation strategy.


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## happytrader (3 April 2006)

Hi Fleeta

Shares like AWC that have options attached to them can be used to derive income and hedge risk providing you have 1000 of them. You can then play all sorts of games such as selling calls at a strike price where you limit the amount of capital gain but pick it up on the premium. Selling calls when the market decides to start discounting the stock. Selling puts when the stock starts to rally. Naturally you will need to invest some time and effort to check out support and resistance levels and to ensure you know how your stock is likely to behave over afew years.

Cheers
Happytrader


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## It's Snake Pliskin (3 April 2006)

> But exits are designed to be taken so if its hit regardless of the tax implications its taken.The exit is tested to give a result which we have ben able to quantify through rigorous testing and if we alter it then we are altering the possible result of the method.Not what a systems trader is trying to do.




Yes, yes.



> *This brings me to the discussion of exits in general.
> If all traders spent as long looking for a great exit methodology as they do for the perfect entry we would have a lot more successful traders.
> Close stops mean you can be aggressive and have shorter exits.*




Yes, true.



> Im always amused by the fact that we all buy stocks and hold them when they reverse.




Psychological problems.



> I think this often happens because we dont often buy *INTO * Momentum.If we did then we could set very close stops have greater reward to risk and be a lot more profitable.If Im trading shorter term thats what Id want.




It`s also good to take advantage of the lack of momentum opportunities.



> Then there is the TRAILING STOP.
> Ive seen this dominate the method and it becomes THE EXIT.
> If the average return on your trading method is 7 times risk and your at 50 times then set a trailing stop but give it some room---dont all of a sudden turn it into a short term trade.It must clearly tell you that the trend has failed or stopped and taking the stop now will lock in more profit than letting it go to the stop or save you from a shock fall.




Yes the trailing stop should lock in profits with some room to let the stock do what it has to. I believe this should be set according to the stock`s individual behaviour.



> *The perfect stop.*




Oh baby, come to me. Wouldn`t it be nice to find.


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## dennisll (20 April 2006)

I would suggest that the exit strategy must fit with the overall strategy.

Say you are a trader that places a lot of emphasis on trend, support and resistance lines.  I would think that a reasonable exit strategy would be based on these same lines.  You perhaps would be setting a stop a few ticks under the last support or resistance level or a few ticks below or above the trend line.

If you are a trader that places a lot of emphasis in channels then I would assume that your stops would be a few ticks above or below the upper and lower channels depending on which way you are trading.

In both cases above, I would think that if the exit is triggered then it must be followed regardless of whether you get the CGT discount or not.

If you are a long term investor, your exit strategy may be based more on whether the fundamentals of the company has changed.  It could also be time-based, but rather than just waiting for 12 months to get the CGT discount, it could be based on when you will be moving away from employment.  Some people create portfolios for their child's university education expenses, hence they exit when their child enters university.  

There are even investors out there whose exit strategies are to "never exit unless I need the money".  There are quite a few happy chappies out there who still have their CBA, WDC or WES shares that they first acquired when those companies first listed.  Why didn't they sell during the bear markets?  Didn't have to, since they didn't need the money and they thought that the companies could weather the storms.

One interesting strategy is to use what successful property investors do -- instead of exiting a profitable investment, use that investment to leverage into other investments.  But that would probably be best described in a completely different thread 

So in reply to your question, if you cannot determine your exit strategy I would suggest you take a step back and see what your overall strategy is and then work out an appropriate exit strategy that fits.  It might mean a difference of a few hundred dollars now compared to what you have been doing in the past, but if you find a complete strategy that fits together and works for you then over the long term you will most likely have a much more profitable system.

Best of luck,

Dennis


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## IGO4IT (23 April 2006)

hi guys,

enjoying this thread as that's my all time biggest challange.

I use fund events to determine my general check points for any long position in which fund value could change (to higher or lower), if changed higher of course I keep successful share going by all means, if fund change to worse then automatically TA will show that change very soon & automatically SP may fall below support & this is when I sell my longs regardless of time frame. if fund value had gone lower but SP wasn't affected I watch very closely & my stop loss triggre is 2 ticks below support.

If TA shows weakness with no logical fund reason I take as a chance to top up to longs knowing that my fund value is still same, looking of course to differnt indicators & if you watch your stocks closely you can tell if any dip is just some traders who wanted to cash out & move on or is that market really sinking!!

in general, my longs are usually less sensitive to dips & can handle any shake up but as long as long term uptrend is untouched.

would like to know your opinion on my strategy. 

cheers


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## RichKid (23 April 2006)

tech/a said:
			
		

> *If all traders spent as long looking for a great exit methodology as they do for the perfect entry we would have a lot more successful traders.
> Close stops mean you can be aggressive and have shorter exits.*




My 2c worth....and if we were to look at that slightly differently: the entry is determined by the exit. So we're really looking at the correct point to exit, ie betting/preparing for a loss. So you've decided about the exit before you enter, all the trouble is then really over the exit as the exit determines where we enter. 

We are 'allowed' to enter by our plan because the price has reached the correct level to justify a low risk entry. You work backwards once you know how much to lose and where to logically lose it (eg below a pivot low), sometimes I wait days to get in and miss out, just bad luck, keep looking for the next logical stop point or stock (assuming of course that you don't want to adjust your position size to account for a wider stop).

So, if you can't enter at a point which is close enough to your ideal exit then you don't enter. Soon as you enter, your max loss (stop loss) and exit have already been determined as you have planned the trade. 

The next bit (and it's a big 'bit') is the profit side (how to let em run as far as possible) assuming the trailing stop is now at least at break even.

hope this helps to promote discussion, not sure if it's the right way yet so keep thinking about it fellas...


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## RichKid (23 April 2006)

tech/a said:
			
		

> .........
> 
> *IF Trading in a discretionary manner*.----- Ive come to the conclusion that you really must give yourself the opportunity to take the greatest profit you can on short term trades.Expect to be stopped out often at a tick or so.Expect to re enter when a trade fails then turns (Your timing was a bit out but you didnt know that when you stopped out!).Every now and again youll pull a 100-200% move and have heaps of 1 and 2% losses---nett very profitable.
> If you want more wins and less profit to gain an overall nett gain then I dont think you can do this trading discretionary.You could find a way to do it mechanically and those that trade this way DO!




Amen to that.....there is hope then for us discretionary traders!!? Brokerage does become an issue with small parcel sizes though, so be careful and maybe choose a cut price online broker. As it is possible to have lots of losers in a row (regardless of what the mathematical odds suggest) your account maybe destroyed unless your starting capital is big enough to withstand the initial drawdowns. 

(btw, only saw your post today, very helpful Tech, funny how much you can learn from systems testing, certainly helpful for us discretionary traders as well).


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## yogi-in-oz (23 April 2006)

Hi folks,

Just expanding a little on Rich Kid's thoughts ... and
presenting some entry and exit strategies, that see us
trading to profitable targets, figured BEFORE we take
the trade.

..... if we use the commonly quoted figures of 90%
of traders losing in the markets, then what are those
other 10% doing to be trading winners consistently?

Mostly, it has little to do with stop losses, but a lot 
to to with better market timing .....!~!

If we can enter a trade early in the trend then we can
afford to sell into a rising market, as we approach our
exit target, which is a lot easier than trying to bail out,
as the masses head for the exits ... 

By entering a trend early, we also limit our risk considerably.

..... there's many different technical approaches that
trader use to enter trades, but if they are not optimized
for better market timing, then traders can often sit on 
stocks for extended periods waiting for something to happen
and risking the propsect of the market testing new lows,
due to lack of news.

Staying with the KISS principle, estimating exits from some 
market geometry can be VERY EASY ... as an example, using 
the rounding bottom or ellipse, there's two places that very
often provide resistance ... those points are the horizontal 
axis through the ellipse and the upper side of the ellipse,
particularly around highs on earlier dates in the pattern.

Look at BRW, in late-February for example, it broke out
form a consolidation zone, at about 4 cents and continued 
its path as expected, supported by the ellipse.

Chart below shows the breakout point and we can easily see
that the pivot or horizontal axis for BRW is located about
6.5 cents ..... price actually made it to 7 cents and with 
high volume of 16 million shares traded, it closed that day 
at 6.4 ... just under our target price ..... since then, it has
pulled back down to test support at 6 cents.

So, rather than waiting on the market to tell us when to
exit via a stop loss, we have already made our bucks by  
trading to an obvious exit target.

..... yeh, yeah, yeah, now we'll get the gurus saying that
we bailed out too early ... but the truth is, while they are 
waiting for BRW to breakout again, we have already taken
a trade in another stock, already primed for a move.

There's no question, that a stock in the later part of an
ellipse pattern can be see trading with high momentum
..... it is a very common occurence to see stocks continue
their run up, after consolidating around the ellipse axis
for a while ...... and if we want to re-enter, when our
time axis analysis gives us a signal, then we have had
our capital working harder elsewhere, in the meantime.

----- 

Another example is the v-bottom, which is very obvious
on the charts and can be exploited just as easily as the
previous example.

Let's look at KYC this time ..... we can see on the chart,
that this week will mark 90 days down from its last 
significant high and the candle count is extreme, at 
around 21 negative.

In fact, the KYC price has effectively halved in that time,
until last Friday, where it gave a signal low by opening
on its lows and closing on its highs ..... that low is yet
to be confirmed by subsequent price action, but Friday's
low is likely to be support for the immediate future.

Some aggressive traders would have entered at the
close on Friday 21042006, as they saw the stock close
on it highs ... this is evidenced by the high volume 
for the day.

Less aggressive traders will wait for a break above 
Thursday's high, before entering the trade.

Principal exit targets for this trade will be retracements
of the 79-cent range down, at  111.5, 124.5, 137.5 and
100% retracement at 1.64 ... and often, these targets 
are reached on our key time targets, confirming our analysis
and a likely impending swing.

-----

Better market timing is also a desirable trait for long-term
investors, as well ..... if we plan to hold a stock for the 
long haul lets optimize our entry, so we can get the 
satisfaction of watching it tick up slowly day-after-day,  
at a steady and sustainable rate.

Our GOG trade is a good example, where it was obvious
around the June 2005 solstice, that GOG was working its
way along the extreme lower edge of tthe ellipse, in 
accululation mode, until the end of July, where we had 
a time cycle signal for an entry, around 17 cents.

In early September 2005 we also had a time cycle,
marked by the vertical, magenta dotted-line, which
turned out to be a breakout for a sharp move up.

Since then, GOG has been largely guided by the lower
edge of the ellipse and while this one has also found
resistance at the ellipse axis, we will hold on for another
sharp move, with an exit target arount 44-46.5 cents and
key target dates being 24042006, 28042006, 12-15052006 
and 19052006 (magenta long cycle on chart).

-----

So in summary, by timing our trades better, we reduce
the risk involved and optimize our gains on any particular
leg up, by trading to obvious targets, as shown in our 
market geometry. 

Such trading also helps with our trading psychology as well,
as WE have determined HOW this trade will be executed,
in terms of entry and exit ..... in-between the market can
do as it pleases, whilstsoever it is trading in our favour ...  

-----

Finally, there's some more reading about TIME stops
and stop losses, in "Trading Plan ... Wozzat", at:

Click here for Trading Plan ... wozzat??? ... more about entries and exits ..... 

It is presented in a .pdf file and be sure to read  Phantom's 
Gift, as well ... there's a link to it about page 39, on memory (?)

Enjoy the read.

happy days

   yogi


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## nizar (16 September 2006)

tech/a said:
			
		

> I guess I look at exits a little differently to most.
> In the long term trading systems that I trade its not un common to have trades last over 12 mths.UTB TOL QBE all are over from memory.
> But exits are designed to be taken so if its hit regardless of the tax implications its taken.The exit is tested to give a result which we have ben able to quantify through rigorous testing and if we alter it then we are altering the possible result of the method.Not what a systems trader is trying to do.
> 
> ...




Wow that was excellent

Thanks tech, actually i was gonna start a thread on Exit Strategies when i remembered this thread and went back and read it. Perhaps i read it back then but has much more meaning now

Tech is the best poster on this forum, hands down, 2nd to nobody else

What a priveledge to all of us that he shares his knowledge here


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## Private Investor (16 September 2006)

There are many ways to set stop losses/protect profit levels and imo it simply boils down to whatever suits you best according to your risk tolerances and objectives.

*The worst thing anyone could do imo is to not have an initial stop loss level when opening a position.*

My view of a stop loss/protect profit level is that once it has been breached then there is a high probability that the share price will continue to fall in the short term at least.

Stop loss/protect profit levels can be set in numerous ways.  Some of the more simpler ways are:

1) Nearest previous price support - trailing or fixed

2) A percentage of the latest closing price

3) Moving average cross-overs

4) Technical Indicator sell signals

Since no-one can determine with 100% certainty where a bottom or top is until it has actually passed, the aim should be to get as much as possible of the rally from the trough to the peak.

How much profit you sacrifice as signal confirmation by buying after the trough and selling after the peak is up to individual risk tolerances and objectives which then determine what strategy you end up using to set stop loss/protect profit levels.


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## kingie_d (11 February 2008)

I only just found this thread and thought I'd revive it to see if peoples stop loss strategies have changed recently. 
This is some good reading but the last post was back in the time of the bull. 
With increased volatility and panic/greed happening this year - how has this affected YOUR exit strategies? Are people still looking long term or have time frames shortened?
Are you now shorting the market? And if you are, what are your exit strategies?


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