Your exit strategy determines whether a trade is profitable. Many traders focus on entries but neglect exits, turning winners into losers. This guide covers every aspect of swing trading exits, from stop losses to profit targets to trailing techniques.
The Two Types of Exits
Every trade has two potential exits:
- Stop loss: Exit to limit losses when the trade goes against you
- Profit target: Exit to lock in gains when the trade works
Both should be planned before you enter the trade. Never enter without knowing exactly where you will exit.
Setting Stop Losses
Your stop loss defines your maximum risk. Here are the main methods:
Technical Stop
Place stops below technical levels where your trade thesis would be invalid.
- Below support: If buying at support, stop goes below it
- Below moving average: If buying at the 20-day EMA, stop below it
- Below swing low: Stop below the most recent swing low
ATR-Based Stop
Use Average True Range for volatility-adjusted stops.
- Calculate 14-period ATR
- Place stop 1.5 to 2 ATR below entry
- Wider for volatile stocks, tighter for steady stocks
Percentage Stop
Simple fixed percentage from entry price.
- Typically 5-8% for swing trades
- Simple but does not account for chart structure
- Use as a maximum loss level, not primary stop
Stop loss rule: Never risk more than 1-2% of your total account on any single trade. Calculate position size based on stop distance.
Setting Profit Targets
Profit targets should be based on technical levels and risk-reward ratios.
Resistance Level Targets
Set targets at logical resistance levels where sellers may appear.
- Prior highs: Previous swing highs often act as resistance
- Round numbers: Psychological levels like $50, $100
- Moving averages: In downtrend recovery, moving averages are resistance
Risk-Reward Targets
Set targets based on a multiple of your risk.
- Minimum 2:1: If risking $1, target at least $2
- 3:1 for higher win rate: Allows for more losing trades
- Adjust for probability: High probability setups can use smaller ratios
Measured Move Targets
Project the expected move based on chart patterns.
- Flag patterns: Add flagpole height to breakout point
- Double bottoms: Add pattern height to breakout
- Head and shoulders: Project head-to-neckline distance
Trailing Stop Techniques
Trailing stops lock in profits while letting winners run.
Moving Average Trail
Use a moving average as a trailing stop.
- 20-day EMA: Tighter, captures shorter swings
- 50-day SMA: Wider, lets bigger trends run
- How to use: Exit when price closes below the average
ATR Trailing Stop
Trail your stop 2 ATR below the highest price since entry.
- As stock rises, stop rises with it
- Never lower your stop
- Works well for trending stocks
Swing Low Trail
Move stop to below each new higher swing low.
- Only move stop when a new swing low forms
- Keeps you in as long as higher lows continue
- Exit when a swing low is broken
When to start trailing: Begin trailing your stop after the trade moves 1R in your favor (your initial risk amount). Before that, keep your original stop.
Scaling Out of Positions
Consider selling in portions to balance profit-taking with trend riding.
Common Scaling Approaches
- 1/3 at first target: Lock in some profit early
- 1/3 at second target: Take more as stock extends
- 1/3 trail: Let the rest run with a trailing stop
Benefits of Scaling
- Locks in profit while maintaining upside exposure
- Reduces emotional pressure
- Balances the need to take profits with letting winners run
Technical Exit Signals
These signals indicate the move may be ending:
Bearish Candlestick Patterns
- Shooting star: Long upper wick, small body at lows
- Bearish engulfing: Large red candle engulfs prior green
- Evening star: Three-candle reversal pattern
Momentum Divergence
- Price makes a new high but RSI does not
- MACD histogram declining while price rises
- Warning sign even if not an immediate exit
Volume Divergence
- Price rising on declining volume
- New highs on weak volume
- Suggests conviction is fading
Exit Rules for Different Scenarios
Exit a Winner
- Hit your profit target
- Trailing stop triggered
- Bearish reversal signal
- Major resistance reached
Exit a Loser
- Stop loss hit - no exceptions
- Setup fails or thesis invalid
- Time stop - no progress in X days
- Better opportunity elsewhere
Common Exit Mistakes
Avoid these exit errors:
- No plan: Deciding exits emotionally in the moment
- Moving stops further: Hoping a losing trade recovers
- Exiting winners too early: Fear of giving back gains
- Holding losers too long: Hope is not a strategy
- Ignoring signals: Dismissing bearish signs because you want to be right
- Not scaling: All-or-nothing exits leave money on table
Exit Planning Template
Before every trade, define:
- Initial stop loss: Price level and dollar amount at risk
- First profit target: Based on resistance or risk multiple
- Trailing method: How you will trail if it keeps running
- Invalidation: What would prove your thesis wrong
Analyze Your Exit Performance
Pro Trader Dashboard tracks your entry and exit prices. See if you are exiting winners too early or holding losers too long.
Summary
A solid exit strategy protects your capital and locks in gains. Set technical stops below support levels or use ATR for volatility-adjusted stops. Target resistance levels with at least 2:1 reward-to-risk. Use trailing stops to let winners run while protecting profits. Consider scaling out to balance profit-taking with trend riding. Plan every exit before you enter, and follow your rules regardless of emotions.
Learn about when to take profits and holding periods to complete your swing trading system.