BARROMETRICS VIEW: Exiting Trades II
In Friday’s blog, I outlined my approaches to exiting trades. In today’s blog, I want to show an example of a structural exit.
But before I continue, it’s worth making the point that I seek to enter intra-day in order to obtain a better reward:risk. When I enter intra-day, I have a picture of what the end-of-day structure needs to look like for me to remain in the trade. That said, let’s turn to the example.
Figure 1 shows the situation as at end of trading on July 7. The ES (e-mini Futures on S&P) had closed below the Head and Shoulders neckline; I was looking for a pause day before a confirmation of the decline with a bearish-conviction (i.e. a day with at least normal range and volume and an open no lower than in the top 25% of the day’s range and a close no higher than in the bottom 25% of the range).
The volume at the start of trading on July 8 confirmed my pre-market scenario. It was not until we picked up volume on a break of the 60-minute range that I changed my mind: I then took the view that a bearish-conviction close was likely. But as I somewhat fatigued that day, I went to bed after placing the entry and stop orders. The purple arrow in Figure 2 shows the path I thought the ES would take so that by the close, I expected to see bearish-conviction bar.
When I awoke, I noted:
- Normal range (low end of normal)
- Normal volume (for price activity since June 11)
- BUT the S&P (cash) had closed in the middle of its range – thus giving me a neutral bar. In this context, the bar’s structure suggested either a rally or a continuation of sideways price action. I exited for a 3-point loss.
I exited because I did not get the structure I needed to remain in the trade. If I entered on a close basis, the structure is not one I would take a trade. That being the case, there was no reason to stay in the trade.
FIGURE 1 18d & 5d ES Structure
FIGURE 2 30-minute ES
FIGURE 3 18d & 5d Structure II