Swing Trade Exit Timing: When to Take Profits and Cut Losses

The entry gets all the attention, but the exit is where you actually make or lose money. Many traders struggle with exits - they hold losers too long hoping for recovery, or they cut winners too quickly out of fear. In this guide, you will learn systematic exit strategies that remove emotion and maximize your swing trading profits.

Why Exits Are Harder Than Entries

Exits are psychologically more challenging than entries:

• Greed: Makes you hold winners too long, hoping for more
• Fear: Makes you exit winners too early, scared of giving back gains
• Hope: Makes you hold losers too long, praying for recovery
• Ego: Makes it hard to admit you were wrong

The Two Exit Decisions

Every trade has two potential exits:

• Stop loss exit: Where you will exit if the trade goes wrong
• Profit target exit: Where you will exit if the trade goes right

Both should be planned before you enter the trade, not decided in the heat of the moment.

Stop Loss Placement Strategies

Strategy 1: Below Support

Place your stop loss below a clear support level:

• Recent swing low
• Moving average (20-day or 50-day)
• Trendline support
• Key Fibonacci level

Strategy 2: ATR-Based Stop

Use the Average True Range (ATR) to set stops based on volatility:

• Calculate the stock's 14-day ATR
• Place stop 1.5x to 2x ATR below your entry
• This adjusts for each stock's unique volatility

Strategy 3: Percentage Stop

Simple but less precise - exit if the stock drops a fixed percentage:

• Common levels: 5%, 7%, or 8% from entry
• Easy to calculate and consistent
• May not align with actual support levels

Profit Target Strategies

Strategy 1: Fixed Risk/Reward Ratio

Set your profit target based on a multiple of your risk:

• 2:1 ratio: Target 2x your stop loss distance
• 3:1 ratio: Target 3x your stop loss distance
• Example: Risk $3 per share, target $6 or $9 profit

Strategy 2: Resistance-Based Targets

Exit at logical resistance levels where sellers may appear:

• Previous swing highs
• Round numbers ($50, $100)
• Moving averages on higher timeframes
• Fibonacci extension levels

Strategy 3: Measured Move Targets

For pattern trades, project the pattern's height from the breakout:

• Measure the height of the pattern (flagpole, cup depth, etc.)
• Add that distance to the breakout point
• This becomes your target

Trailing Stop Strategies

Trailing stops let you capture more of a winning move while protecting profits:

Moving Average Trail

Exit when price closes below a key moving average:

• Aggressive: Trail with 10-day MA
• Moderate: Trail with 20-day MA
• Loose: Trail with 50-day MA

Swing Low Trail

Move your stop up to below each new higher low:

• Initial stop below entry swing low
• As stock makes new highs, it creates new higher lows
• Move stop to below each new swing low
• Exit when price breaks the most recent swing low

ATR Trailing Stop

Trail your stop at a fixed ATR distance from the highest close:

• Track the highest closing price since entry
• Set stop at 2x ATR below that high
• As price rises, stop rises with it

Partial Exit Strategies

Taking partial profits can balance locking in gains with letting winners run:

The 50/50 Method

• Exit 50% of position at first target (1:1 or 2:1 R)
• Move stop to breakeven on remaining 50%
• Let the rest run with a trailing stop

The 1/3 Method

• Exit 1/3 at first resistance level
• Exit 1/3 at second resistance level
• Trail the final 1/3 with a moving average

Exit Signals to Watch

These signals suggest it may be time to exit, even before your target:

Technical Warning Signs

• Bearish reversal candles: Shooting star, bearish engulfing at resistance
• Volume exhaustion: Very high volume day without price follow-through
• RSI divergence: Price makes new high but RSI makes lower high
• Moving average break: Price closes below key MA

Fundamental/Contextual Signs

• Unexpected negative news or earnings
• Sector rotation away from your stock's sector
• Overall market breaking down
• Your original thesis is no longer valid

Time-Based Exits

Sometimes the best exit is based on time, not price:

• Maximum hold period: Exit if trade has not worked in 10 to 15 days
• Before earnings: Exit before earnings announcements to avoid gaps
• Before weekends: Some traders reduce exposure Friday afternoon
• Options expiration: Exit options positions before the final week

Exit Rules Checklist

Before entering any trade, know these three things:

• Stop loss: Exactly where will you exit if wrong?
• Initial target: Where is the first logical profit-taking zone?
• Trailing strategy: If the trade runs, how will you trail your stop?

Common Exit Mistakes

• No stop loss: Hoping a loser will recover
• Moving stops further away: Widening stops to avoid getting stopped out
• Exiting too early: Taking profits at 5% when the trade could have made 20%
• No profit target: Holding without a plan until the trade reverses
• Ignoring warning signs: Staying in despite clear reversal signals

Summary

Successful exits are planned, not improvised. Set your stop loss and profit target before entering. Use trailing stops to capture more of winning moves. Take partial profits to balance certainty with upside potential. Watch for exit signals that warn of reversals. Most importantly, follow your exit plan regardless of how you feel in the moment.

Ready to learn more? Check out our guides on risk management or entry timing.