3 Key Trading Exit Strategies for Day Traders | Espresso

3 Important Exit Strategies for Day Traders

Traders usually focus a lot on the perfect time for entering a trade. However, they often miss out on deciding the right time to exit a trade. It’s true that deciding on a proper entry time is important; however, picking the right exit time can determine the real success of a trade for the traders.

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Generally, for intraday traders, there are several things to consider before entering a trade. In addition, there are different assortments of parameters to follow in order to chalk out a successful trading session meticulously. However, when it comes to exiting a trade, even the most experienced traders fail to choose the right time or strategy.
Also Read: Intraday Trading Tips & Strategies

While you can never assure yourself that you would gain profits in all your trading sessions, finding the right exit strategy to plan your trades could at least give a boost to your confidence for better gains tomorrow. This blog will talk about the 3 most prominent exit strategies for day traders that every investor, experienced or new, should know about.

Top Exit Strategies in Day Trading

1. Risk and Reward Ratio Strategy

This strategy is the most simple exit strategy available for day traders. Also, even beginners can use this one for a successful exit from an intraday trading session. Simply put, this one is about picking the right risk and reward ratio that could be favourable and will help your trade to be a successful one.
Also Read: Intraday Guide for beginners

For instance, if the price of a stock is ₹10 and you expect it to rise to ₹15 but it doesn’t go above as per the trend line that you have mapped, you will need to place your stop-loss order at that point. So, for a stock price of ₹10, you can put a stop-loss at ₹9. Here, your risk to reward ratio would be 5:1. This means, for making ₹5, you will risk ₹1, which is not a very bad position to have.

2. Trailing Stop-Loss Strategy

The trailing stop-loss order is the second-best exit strategy for intraday traders. This strategy aims to balance the trading risks against the profits to minimise the risks. According to its name, one part of this exit strategy is used by beginners in day trading. So, every time the trader increases their selling price, the stop-loss order is updated to cover up the risk of the investor in that particular stock.

For example, if you buy the stocks of a company at ₹100, you can place a stop-loss order at ₹99. So, when the price moves up in your favour, the selling price would be increased to the ₹101 mark as a part of the trailing stop-loss exit strategy. At this point, however, the stop-loss isn’t moved back down. For instance, if you move up to ₹105, you can place the stop-loss at ₹104; you will not reduce the stop-loss below ₹104 at any time during the trade. And similarly, this pullback on the stock price will help trigger your stop-loss order, effectively mitigating the risks.

3. Time-Based Exit Strategy

This is an exit strategy example where a part of the line of intraday trading will be based around the major events during the trading hours. So, if traders get the news about a certain stock, they will stop all day trades of other stocks a few minutes before the news is announced. And once the news is out, the trading will be resumed.
Also Read: Best Time Frame for Intraday Trading

Conclusion

Traders usually worry a lot about entering a trade at the right time during the intraday trading session. However, there should be equal efforts while identifying the right exit time as well. By keeping in mind the exit strategies mentioned above, it will be better for you to choose your trading exit points during an intraday trade session.

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Frequently Asked Questions

Market timing is basically a misunderstood concept in stock trading. It is nothing but a good exit strategy that has been implemented correctly by the trader.

When making an exit plan for an intraday trade, investors should calculate the risk and reward ratios before entering the trade. Then they should use those ratios as an outline to exit the trading position at the best stock price, whether they are profiting from it or incurring a loss.

 

Trend trading is the idea of intraday trading that attempts at capturing the gains when the price of stocks is moving in a constant direction, known as a trend.

An exit strategy in intraday trading is a method by which a business owner or a trader can get out of an investment that they are involved in.

Stop-loss order is one of the scaling methods that enable savvy, disciplined investors to protect their profits and mitigate losses.