Swing Trading: Dynamic Exits for Dynamic Traders

For most swing traders, the first question is “how do I know when to buy a stock?”

And the second question is “how do I know when to sell?”

When it comes to quantifying swing trading strategies, one of things our research has discovered is that using dynamic exits, exits that are determined based on current market conditions, is a superior approach to using static exits, which are usually determined ahead of time.

An example of a static exit is “sell after five days.” An example of a dynamic exit is “sell on a close above the 5-day moving average.”

As Larry writes in his book, Short Term Trading Strategies That Work: A Quantified Guide to Trading Stocks and ETFs:

Ideally, we want to enter trades with edges. And then we want to exit these trades at levels where the edges are maximized and before they start disappearing. We obviously want to buy into weakness and sell into strength. And we want to be as structured and as consistent as possible with this process.

Some people can do this intuitively but most of us can’t. Therefore, like our entry rules, we want to have exit rules that are statistically-backed and we want to be consistent in following these rules.

You can read more about dynamic edges in Chapter 13 of Short Term Trading Strategies That Work or, if you don’t have a copy, you can get one for free as either a pdf download or in paperback. Click the title link below to learn more and to choose your format.

Short Term Trading Strategies That Work: A Quantified Guide to Trading Stocks and ETFs – by Larry Connors


Financial stocks were among the biggest beneficiaries of follow-through buying on Wednesday. Up more than 2%, 3% and 4% respectively were ^BAC^, ^GS^ and ^USB^.

Note that strength in US Bancorp, which reports earnings on Thursday, brought the stock back above its 200-day moving average while BAC and GS remain below that level.

Here are 7 Stocks You Need to Know for Thursday

Pulling back ahead of trading on Thursday by more than 2% were shares of ^NFLX^. In neutral territory, the stock has closed lower for three out of the past five days since closing at year-to-date highs one week ago.

Shares of ^CTAS^ rallied by more than 9% after a pullback that took the stock lower for seven out of the previous eight trading days. The rally in CTAS retraced the pullback in a single session to trade back near its highest levels of the year.

Pulling back ahead of its scheduled earnings announcement on Thursday were shares of ^FCX^. The stock opened on Wednesday at new short term closing highs before reversing modestly over the balance of the day.

Also reversing after rallying to new short term highs above the 200-day were shares of ^MSFT^. MSFT is scheduled to announce quarterly earnings on Thursday.

Breaking down below the 200-day moving average on Wednesday were shares of ^YHOO^. The stock fell by more than 7% and is trading at its lowest levels of the year.

Rallying into overbought territory below the 200-day, ^ETFC^ is another company scheduled to report earnings on Thursday. Shares of ETFC, which have been below the 200-day since early June, soared by more than 13% in Wednesday’s session.

After opening higher by more than 3% and trading near its 10-day closing high, shares of ^QCOM^ reversed sharply over the balance of the day. QCOM still managed to close higher, making Wednesday’s finish the stock’s fourth consecutive higher close.

David Penn is Editor in Chief of TradingMarkets.com