Many traders focus on entries and neglect exits. But when you exit a trade determines whether you capture a profit or take a loss. A great entry means nothing if you exit poorly. In this guide, we cover the essential exit strategies every swing trader needs to master.
The Two Types of Exits
Every trade has two possible exit types:
- Stop loss exit: When the trade goes against you and you cut your losses
- Profit target exit: When the trade goes in your favor and you lock in gains
Critical rule: Know both exit points before you enter the trade. Never enter without knowing where you will exit if wrong (stop loss) and where you will take profits (target).
Stop Loss Strategies
A stop loss protects your capital when a trade does not work. Here are the main methods for setting stop losses:
1. Technical Stop Loss
Place your stop below a significant technical level. This is the most common and often the best method because if that level breaks, your trade thesis is invalid.
Technical Stop Example
You buy stock XYZ at $50 because it bounced off the 50-day moving average:
- The 50-day moving average is at $48
- The recent swing low is at $47
- Place your stop at $46.50 (below the swing low)
- If price breaks this level, the uptrend is likely over
2. ATR-Based Stop Loss
Use the Average True Range to set stops based on volatility. This method adapts to how much the stock normally moves.
- Calculate the 14-day ATR
- Set your stop 1.5x to 2x ATR below your entry
- This gives the trade room to breathe while still protecting you
3. Percentage Stop Loss
Set your stop at a fixed percentage below your entry. While simple, this method does not account for the stock's volatility or technical structure.
- Common percentages: 3%, 5%, or 8% below entry
- Best used as a maximum stop when technical stops are too far away
4. Time-Based Stop Loss
If the trade is not working after a certain period, exit. This prevents capital from being tied up in dead trades.
- If no progress after 5-10 days, consider exiting
- Combines well with technical stops
Profit Target Strategies
Knowing when to take profits is just as important as knowing when to cut losses. Here are the main approaches:
1. Fixed Risk-Reward Target
Set your profit target based on a multiple of your risk. This is simple and effective.
Risk-Reward Target Example
You enter at $50 with a stop at $47 (risking $3):
- 2:1 target = $56 ($3 risk x 2 = $6 reward)
- 3:1 target = $59 ($3 risk x 3 = $9 reward)
- Most swing traders aim for 2:1 or 3:1
2. Technical Target
Set your target at a significant technical level where price is likely to face resistance.
- Previous swing high or low
- Key moving average
- Round numbers ($50, $100, etc.)
- Fibonacci extension levels
3. Measured Move Target
Use the pattern you are trading to calculate the target. Most chart patterns have a measuring technique.
- Bull flag: Add the flagpole height to the breakout point
- Head and shoulders: Subtract the head-to-neckline distance from the neckline break
- Triangle: Add the widest part of the triangle to the breakout point
The Trailing Stop: Best of Both Worlds
A trailing stop moves up (for long positions) as price moves in your favor. It locks in profits while letting winners run.
Trailing Stop Methods
- Moving average trail: Exit when price closes below the 20-day moving average
- Swing low trail: Move your stop to below each new higher swing low
- ATR trail: Keep your stop 2x ATR below the current high
- Percentage trail: Trail your stop 8-10% below the highest price reached
Trailing Stop Example
You bought at $50 with an initial stop at $46. The stock rises:
- Price reaches $55 - move stop to $50 (break even)
- Price reaches $60 - move stop to $54 (using swing low or 10% trail)
- Price reaches $65 - move stop to $59
- Price pulls back and hits $59 - you exit with $9 profit instead of $15 potential
- But you captured a significant portion of the move and protected your gains
Scaling Out: Partial Profit Taking
Instead of exiting your entire position at once, you can take partial profits at different levels.
How to Scale Out
- Sell 1/3 of your position at your first target (often 1:1 risk-reward)
- Move your stop to break even on the remaining position
- Sell another 1/3 at your second target (2:1)
- Let the final 1/3 ride with a trailing stop
Benefits of scaling out: You lock in some profit early (good for psychology), reduce risk by moving to break even, and still have exposure to capture a bigger move if it continues.
Exit Signals to Watch For
Beyond your predetermined stops and targets, watch for these exit signals:
Bearish Exit Signals (for Long Positions)
- Bearish candlestick patterns at resistance (shooting star, bearish engulfing)
- Negative divergence on RSI or MACD (price making new highs, indicator making lower highs)
- Break below key moving average on high volume
- Overall market weakness developing
Bullish Exit Signals (for Short Positions)
- Bullish candlestick patterns at support (hammer, bullish engulfing)
- Positive divergence on RSI or MACD
- Break above key moving average on high volume
- Overall market strength developing
Common Exit Mistakes
- Moving your stop loss further away: This turns a small loss into a big loss. If your stop is hit, accept it.
- Exiting winners too early: Taking a $1 profit when you should have held for $5. Let your winners run.
- Not having a plan: Making emotional decisions in the moment instead of following a predetermined exit strategy.
- Hoping instead of acting: Watching a losing trade get worse while hoping it will turn around.
- Ignoring your stops: Deciding to "give it more room" when price hits your stop level.
Track Your Exit Performance
Pro Trader Dashboard shows you how much you left on the table and how much you saved by exiting when you did. Analyze your exit timing and improve your results.
Creating Your Exit Plan
Before every trade, write down:
- Your stop loss level and why (technical level, ATR, percentage)
- Your profit target(s) and why
- Whether you will scale out or exit all at once
- What signals would make you exit early
- Whether you will use a trailing stop after reaching break even
Summary
Exit strategies are essential for swing trading success. Always know your stop loss before entering a trade. Set profit targets based on risk-reward ratios, technical levels, or measured moves. Consider using trailing stops to let winners run while protecting gains. Scale out of positions to lock in profits while maintaining upside exposure. Most importantly, follow your exit plan and do not let emotions override your strategy.
Ready to continue learning? Check out our guides on selecting stocks for swing trading and swing trading ETFs.