The most important day trading stock tip to act on is to set your predetermined exit points for each and every trade.
Your emini trade system must have the following methodical exit policies:
- Stop-loss exits to protect your capital.
- Profit exits to capture your gains.
- Time based exits stops to free you up to do something else with you money or get ready for the next real move.
The following automatic exit order methods are recommended and are fully explained in the e mini future trading classes series called the Home Study Course.
Stop Losses and Profit Targets
1.) A fixed dollar amount (e.g. $1,000)
2.) A percentage of the current price (e.g. 1% of the entry price)
3.) A percentage of the volatility (e.g. 50% of the average daily movement)
4.) Based on technical analysis (e.g. support and resistance levels)
5.) Trailing stops
Stop losses are not negotiable. They must always be in place. Even the most experienced professionals obey this day trading stock tip and place a stop loss order on every trade. They must also be cancelled once a trade is closed so that they do not become “sell orders” after the trade is closed.
The stop loss exit and profit exit methods are:
- Fixed Amount - Specify the stop loss order at an exit price based on your entry price minus what you are prepared to lose. If it is a long position than it will be a “sell” to close the position, or if you are in a short position it will be a “buy” to close.For your profit exit add the amount of profit to your entry price to get the sell order price to enter as the exit.
- Percentage of the Current Price – This is similar to the fixed price method with the difference that you determine the stop-loss price by applying the percentage loss you want to the entry price and add or subtract it to get your stop loss price.For your profit exit, calculate the return you want on your entry price and add the resulting number to your entry price to get the sell order price to enter as the exit.
- Percentage of the Volatility – Using this stop loss method, the stop loss is higher for high volatility and lower for quiet markets. To calculate this, you first must determine the average daily range (daily high to daily low) over the previous 8 to 10 trading days. Then having established the dollar range, you multiply this by the percentage of that range that you wish to capture as a target profit (say 50%). For example, say your average daily range is $20. 50% of this would be $10.The idea of this day trading stock tip is try to maximize the chances of obtaining your 50% move up from the entry point before the peak is reached, and also allow for the e mini to move lower without getting stopped out. Assuming that your trade is not the bottom of the range, you can divide the volatility range you determined into half, and subtract that from your entry point (in our example 25% which would be half of the $10). Thus you have room for a 25% downward price move without being stopped out.The profit target will be the entry point plus the 50% (which in our example is $10) for the target profit exit point.
- Technical Resistance and Support Levels – Using this stop loss method, based on trend lines or other indicators of support levels, you may be confident enough to place your stop loss point just below the support line. This will mean that if the price falls through the support line, you will get stopped out.
For profit targets established resistance levels will act as the guide as to where the price is likely to turn downwards again, and your target sell can be entered at a fraction below that so that your sell order is executed before the price turns down again. - Trailing Stops - Trailing stops is our last day trading stock tip and these are used to garner additional profits above your target profit. This may be the case where you enter a trade, place your stop loss and your target exit, but then find that the momentum for the up (or down) trend exceeds your expectations, so you temporarily remove the target exit order and let the trade move higher (long) or lower (short). To catch as much of the price move as possible, you then place a trailing stop of a small fixed or percentage amount which when the price trend reverses, will then kick in to close the trade and capture an additional amount of profit for you. In this instance you will also remove your regular stop loss order at the time of placing the trailing stop order.
For a more thorough analysis and explanation of trading exit points, we recommend the emini day trading classes contained in the Day Trading Home Study Course.
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