Swing Trading with PowerRatings: Trading with Dynamic Exits
One of the first questions traders like to have answered when told of a new potential trading opportunity is “when do I get in?”
But as most experienced swing traders know, an equally important question is “when do I get out?”
For traders who use PowerRatings to help them find the best stocks and exchange-traded funds to trade every day, there are a variety of options available to answer the “when do I get out?” question. But one thing those options all have in common is this: they are dynamic, not static exits.
As Larry Connors, founder and CEO of TradingMarkets.com and Connors Research, recently explained:
“A dynamic exit is an exit that relies upon recent price movement as opposed to some fixed exit date or price (a static exit). Dynamic exits consistently outperform static exits in historical testing and you’ll want to apply them to your trading.”
An example of a static exit would be exiting a trade after three days, or after a gain of 2%. In the testing done by Connors Research, testing that goes back more than a decade, these static exits have underperformed exits based on indicators like moving averages and the Relative Strength Index, which take into account the actual price environment of the trade – rather than some arbitrary number or level.
Above: An example of how a dynamic exit works in a stock from our 5 Stocks for the Next 5 Days roster from the Ultimate PowerRatings weekly newsletter. To subscribe to the newsletter for free, click here.
For most short-term, swing traders, the 5-day moving average dynamic exit is the easiest and most effective dynamic exit to use. This is because the 5-day moving average is easy to calculate and is a common indicator in trading software packages. For example, traders using PowerRatings can add the 5-day moving average to their PowerRatings charts when doing their daily post-market/premarket analysis.
So for swing traders to truly optimize their trading, exiting top rated stocks and ETFs after they have rallied into strength BY CLOSING ABOVE THEIR 5-DAY MOVING AVERAGES is one quantified way for traders to know when the time is right to lock in gains and get ready for the next round of trading opportunities.
Click here to find out what PowerRatings can do for you and your trading. Our free, 7-day trial gives you complete access to our PowerRatings for stocks, exchange-traded funds, leveraged exchange-traded funds or all three!
David Penn is Editor in Chief of TradingMarkets