If you’ve been around me for any amount of time, you know how much I enjoy doing different things.

I have a large garden of raised beds in the back yard that has produced all the cucumbers, tomatoes, eggplant, peppers, herbs and spices you can imagine. I love to get my hands dirty and work in the soil. It’s as close as you can get to becoming a “gentleman farmer” on Long Island.

You may also know that I really enjoy woodworking. There’s something about planning a project and measuring the wood and assembling it that is so satisfying to me. And this isn’t like stuff you get from Ikea! I’m proud of my creations and am always happy to show them off.

A year ago, I got one of those outdoor pizza ovens and we’ve had a fun time cooking a few pies. There is nothing like the smell of a fresh pie as it’s cooking. And it tastes so much better than anything Domino’s or Papa John’s can deliver to the house.

The other day I decided to try something new – baking bread. I love everything about sourdough bread – from the texture to the flavor – so I began to poke around to find the best recipe. I finally discovered one I liked and set about starting my career as a bread baker!

Making sourdough bread is a process. You can’t dump the ingredients into a box and have a loaf of bread in 45 minutes. But it’s worth the wait. Look at the photo and see for yourself. The crust was nice and chewy and it had that slightly sour taste that makes it so wonderful. I can honestly say it’s better than anything you can buy in the grocery store!

(Tell you what, if you want the recipe, send me an email and I’ll send it your way.)

I’ll probably make another loaf for Thanksgiving, probably more for Christmas. Who knows, the elves in the workshop may hand out a few loaves for presents!

This has nothing to do with the market – you can’t buy options on my sourdough bread – but I hope it will encourage you to do something productive with your spare time. Work your hands. Develop your brain. Get off the sofa and do something to stimulate your mind.

Have a great week and keep crushing it.

Rob

One of the hardest skills to master in trading isn’t finding good entries – it’s knowing when to exit your winning trades. While it may seem counterintuitive, managing winning positions often proves more challenging than cutting losses. Here’s your comprehensive guide to maximizing profits while protecting your gains.

The Psychology of Winning Trades

Before diving into specific exit strategies, let’s address the elephant in the room: the emotional aspect of managing winners. When you’re sitting on profits, several psychological factors come into play:
• Fear of giving back gains
• Greed pushing you to hold for more
• Analysis paralysis as you watch every tick
• The tendency to exit too early due to past bad experiences

Remember: No one ever went broke taking profits. However, consistently exiting too early can be just as damaging to your long-term success as holding too long.

Technical Indicators for Exit Timing

1. Moving Averages
• Use the 8 and 21 EMAs for shorter-term trades
• Watch for price interaction with complementary support and resistance for longer term positions
• Consider closing or partial exits when price breaks below key moving averages

2. Support and Resistance Levels
• Identify major price levels where the stock might encounter resistance
• Watch for signs of weakness as price approaches these levels
• Consider scaling out portions of your position at each significant resistance level

3. Volume Analysis
• Decreasing volume during price advances may signal weakening momentum
• Heavy volume on down days could indicate institutional selling
• Watch for volume spikes which might signal climactic tops

Practical Exit Strategies

The Scaling Out Approach
Instead of exiting your entire position at once, consider using a 4-3-2-1 exit system:

1. First Exit (4 Contracts or Equivalent)
o Close 4/10 of your position when you reach your first target, such as a 1:1 risk/reward ratio.
o This step ensures you at least break even on the trade.

2. Second Exit (3 Contracts or Equivalent)
o Exit the next 3/10 at your initial price target.
o This locks in meaningful profits while still leaving room for growth.

3. Third Exit (2 Contracts or Equivalent)
o Close another 2/10 when the price continues to a higher target.
o By this point, the trade is well into profit.

4. Final Exit (Runner)
o Let the remaining 1/10 run with a trailing stop.
o Adjust your stop to lock in additional gains as the price advances.

This approach is adaptable to smaller positions as well. For example, with four contracts, consider a 2-1-1 exit, and with two contracts, a simple 1-1 split works effectively.

Using Time-Based Exits
For options traders especially, time-based exits are crucial:
• Consider taking profits on short-term options when you have 2-3 weeks until expiration
• Watch for time decay acceleration in the final month
• Don’t let profitable positions expire worthless due to greed

Risk Management Rules

1. Use Trailing Stops
– Implement trailing stops based on ATR or percentage moves
– Gradually tighten stops as profits increase
– Never move stops wider once set

2. Define Profit Targets
– Set clear profit objectives before entering trades
– Use technical levels to identify realistic targets
– Don’t arbitrarily change targets once in a position

3. Monitor Market Context
– Watch overall market conditions
– Be more aggressive with exits in choppy or bearish markets
– Let winners run longer in strong bull markets

Common Mistakes to Avoid

• Getting Married to Positions: No matter how much you love a trade, be ready to exit when your signals say so

• Ignoring Warning Signs: Don’t rationalize away technical warnings because you want more profit

• Moving Targets: Avoid constantly pushing your profit target higher without technical justification

• Revenge Trading: Don’t hold positions longer trying to make back previous losses

Creating Your Exit Checklist

Develop a personal exit checklist that includes:
1. Initial profit target levels
2. Technical indicators to monitor
3. Market condition assessment
4. Time-based considerations
5. Position size management rules
6. Trailing stop parameters

Bottom Line

Successful trading isn’t just about finding good entries – it’s about managing your winners properly. By implementing these exit strategies and maintaining discipline, you’ll be better equipped to protect your profits while letting your winners run when appropriate.

Remember: The goal isn’t to catch the absolute top of every move. It’s to consistently capture the meat of the trend while protecting your capital. Start with a clear exit strategy before entering any trade, and stick to your rules once in the position.

Your success in the market depends more on how well you manage your winners than how often you’re right. Master these exit strategies, and you’ll be well on your way to more consistent trading results.