When to Exit a Trade

From Mark Mark  Deaton newsletter  mark@renegadetrader.com 

We'll first thing you need to do is understand the stages of your potential exits - when MIGHT you get out.

1.STOP LOSS - Step 1 is a stop loss - Literally when the trade goes against you from the start, this is the first time you would consider an exit.

2. IMPULSE MOVE UP - The next point of exit is when price is extended in the direction you forecasted, when price begins to move up, are we tolerating a pull back ?

3. MULTIPLE IMPULSE MOVES UP - The last time at which you would consider an exit is after many impulse waves up. In other words price went up, pulled back, went up and pulled back again and now went up. At what point to we decide to remove the position and take profits?

Before you enter any trade you need to think about all 3 scenarios you need to decide in advance what your going after, hopefully you have a plan of action and you know in advance EXACTLY what sort of target your shootin' for.

For example many times after I enter price prints a low that is lower than my entry, sometimes its much lower - My strategy ? When price prints this low I know that there is a very good chance that it will close up higher.  If it closes low I'M OUT IMMEDIATELY.

If you want detailed info., on how to plan all these potential outcomes in advance you would do yourself good by checking out my complete traders arsenal for here -

http://triplestrikemethod.com/index.php?page=home2

S Long at $4, using flowchart for entry strategy.

Going long on Sprint (S) as the first real live of my entry strategy flowchart. The chart fits the strategy perfectly. Let's see what happens.

Buy price was $4, which was a little high in the trading range of the past days, but the green candles are promising, and there is strong support from the August low.

AOD Alpine Total Dynamic Dividend - increase position at $8

Another opportunity created by the market correction. I'll probably double my current position in AOD if I can get in at $8.00 this week. I was much later into AOD than AGD, where my profit on 30% of the position was over 80%. Because of this I didn't take the profits as the market went up.

However, AOD actually has a higher dividend and a lower price, so pays now 12c every month as opposed to 11c each month on AGD. That doesn't sound like much, but it translates as 18% p/a in dividends alone.

If the market gets through Greece, Euro shock and BPs oil mess, and we see better jobs numbers, things may rebound, and perhaps we'll get 18% capital gains as well.

Look at the graph below showing the market corrections in February and May. I've included one of my favourite indicators - RSI (Relative Strength Indicator). When RSI hits 10 on the botton chart (red circles), thats one of my buy signals.  When it hits 90 at the top of the chart, you think about sellling. It's not the final signal, I leave that to my gut. But its a more of a confirmation that the momentum is with you, and the wave is about to break.

 

AGD Buyback opportunity after the market hammering

Wow! Am I glad I sold 30% of my favorite monthly income stock AGD (See earlier post, sold at the highest price in the last 18months.

Here is what I said I would do in the earlier post": " My AGD re-entry point is $9.25, although I'll fine tune that based on how things go. I'll be looking for similar pattern as the left of the graph for reintry - Red line above green, red candles turning to green, all candles below the green. A Doji or two to signal the market has beaten AGD down enough again.I'll probably have to wait 2-3 months for this reentry point. "
The recent market hammering because of the Goldman-Greece-Euro hysteria whacked the price down to below my buy point of $9.25. I'll wait to see if there is any permanent downtrend here, but look for a reentry at $9.00, instead of the $9.25 that I thought it would reach. I'm also only having to wait a month, rather than the 2-3 months I predicted. So I only lose out on one month of AGD dividend if I get in before the 15th. (AGD pays monthly, at the end of the month, based on your holding on the 15th).

ADG is a closed end fund, which according to the experts, often means it trades above Net Asset Value (NAV). In theory, this means it can be hit harder than other stocks by retrenchments, but it also means it may bounce back quickly.

Taking capital gains in income funds is part of our strategy at Daily Income for Life, although buying AGD was done originally for the pure income potential.   At $9.25, AGD pays 14% p/a, which is not as good as it my initial purchase of AGD when it was paying 26% p/a, but its still a healthy income ETF to own.

In todays market, with even the stock exchanges uncertain whose computers screwed up to cause Thursdays panic, buy and hold is appears to be a completely outdated way to be in the market. By buying mainly dividend stocks that pay 10% p/a, we are hedging market volatility to a certain extent.  Reinvesting the dividend month  helps cost average out the price of the shares you own. 

Sold O at $32.79 for 41% total gain

O was the income stock that started my income portfolio in 2008. O pays income monthly, at around 6% pa. It's had a long ride upwards after I started investing in 2008, bought more in 2009, and reinvested all dividends.

My call was that a 41% gain in total over about 18 months is better than 6% compounding over the same time. Althouth Daily Income for Life is about finding income producing stocks, the trading strategy is also a three prong approach:

1. Using 75% of the portfolio, buy stocks that pay 10%+ dividend or royalty yeilds and reinvest all dividends/royalties.
2. Take capital gains income stocks and reinvest using technical analysis to accelerate capital appreciation
3. Actively trade small and medium cap stocks with up to 25% of overall portfolio value in order and direct capital gains into additional income streams.

O Exit Point Grapsh, show the nice long run. Too good not to take profits.

It's going back on the income watchlist, but my gut is telling me this latest rally is coming to an end, so I'm converting this position to cash to see if my intuition is right.

It's better to be sitting on cash at the end of a rally, and have all your positions being taken out by your trailing stops, than cursing yourself watching the graphs fall and your profits erode day by day.

However, the Daily Income for Life strategy needs to stay invested in dividend and royalty producing stocks to work. I'll be watching the market carefully using technical analysis to see where to reinvest - either in the same income producing stocks as were sold in the last month (BPT, AGD, O) or in new ones (Income Watchlist)

Even if the O pullback after this rally is only $2 per share, it will still be worth buying back in. Let's say our position size is 100 shares of O. The buy back price in two months is $30 after Greece is solvent again and Goldman execs are rightlully dragged through the mud.

The cost of lost dividends and exit-reentry commission would be about $32. So we are $200 - $32 ahead through actively managing our income investment using technical analysis. This is $168 cash. Tt would have taken approximately 20 months of dividend income to create this profit.

And if O keeps going up, we just pick another stock on our income watchlist that is looking better from a technical point of view.