Defining Exit Rules

Exits Are Harder Than Entries

Most trading education focuses on entries — when to get in. Far less attention is paid to exits. But your exit strategy has a larger impact on your profit factor and R:R than almost anything else.

Why? Because:

• Your entry determines your potential. Your exit determines your actual result.
• Bad exits can turn winning setups into losing trades
• Good exits can make mediocre entries profitable

The Three Exit Scenarios

Every trade has three possible exit paths:

1. Stop loss hit — Trade goes against you

2. Target reached — Trade reaches your profit objective

3. Time/rule-based exit — Trade is closed for non-price reasons (end of session, planned holding period)

Your playbook should define how to handle all three.

Defining Your Target

The best targets are set at logical price levels — not arbitrary dollar amounts.

Methods for setting targets:

• Fixed R:R — Target is always 2× or 3× your risk. Simple, consistent, easy to analyze.
• Next technical level — Target at the next resistance, prior swing high, or structural level
• ATR multiple — Target is X × average true range from entry
• Time-based — Close by end of morning session or at a specific time

Recommendation for beginners: Start with fixed R:R targets (2:1 or 3:1). This makes your statistics cleanest and is easiest to analyze.

Partial Exits

Partial exits — closing part of your position at an intermediate target — are a popular way to lock in gains while letting part of the position run.

Example: Close 50% at 1:1 risk/reward, move remaining stop to breakeven, target 3:1 on the rest.

Benefits:

• Reduces emotional pressure — you've already locked in a partial win
• Allows participation in larger moves
• Creates a "free" trade once stop is at breakeven

Drawback: Can reduce maximum R on strong moves. Document your partial exit rules precisely in your playbook.

Trailing Stops

A trailing stop moves with price to lock in gains as the trade moves in your favor. Types:

• Fixed dollar trail — Stop moves up by $X every time price moves up by $Y
• ATR trail — Stop trails by 1× or 2× ATR
• Moving average trail — Stop trails below a moving average

Time Stops

If a trade hasn't reached your target after a defined period, it may be valid to close it — even if the stop hasn't been hit.

Example: "If trade hasn't moved 1R in my favor within 60 minutes of entry, close it."

Time stops prevent capital being tied up in slow-moving trades that aren't working as expected.