Exit rules: time stops, trailing stops and partial exits

What you will learn

• How to write a time stop that frees capital from trades that do not move
• Three trailing-stop methods for swing trades and how to calculate each one
• How to calculate the blended result in R when you exit in parts
• How to choose one exit plan and keep it fixed long enough to evaluate it

Explanation

The basic trade-offs of fixed targets, partial exits, trailing stops and break-even stops are covered in the course Risk Management. Here they become exact swing-trading rules. R means the initial risk per share: entry price minus initial stop for a long trade.

The time stop

A time stop closes a trade after a set number of trading sessions if it has not reached a defined progress level. Example rule: "If the trade has not reached +1R by the close of session 10, exit at the next open." If a swing idea does not move within days, the reason for the trade has weakened, while capital stays tied up and overnight risk remains.

Define two things: the number of sessions (for example about 1.5 to 2 times the typical holding period of your winners, taken from your journal) and the progress level (for example +1R).

Three trailing-stop methods

• Swing-low trail: after each new higher swing low forms on the daily chart, move the stop just below it.
• Moving-average trail: exit when the daily close is below a chosen moving average, for example the 20-day exponential moving average (EMA). Closes avoid exits on brief dips, but you exit at the next open.
• Chandelier stop: stop = highest high since entry − (multiplier × ATR). ATR is the Average True Range, a measure of typical daily movement. A multiplier of 2 to 3 is common. The stop only moves up, never down.

Partial exits and the blended result

A partial exit sells a fixed part of the position at a target and manages the rest with a trailing stop. To compare plans, calculate the blended R:

Blended R = (share 1 × R of part 1) + (share 2 × R of part 2) + …

Partial exits reduce the variation of results but also cut the largest winners. Only your own sample of trades can show which plan fits your setups.

Rules of thumb

• Write the exit plan before entry.
• Use one exit plan for at least 20 to 30 trades before judging it; a few trades show mostly noise.
• A stop is an exit order, not a guaranteed price; gaps can fill far below it.

Worked example

Hypothetical example: account €30,000, planned risk 1% = €300. Long entry at €50.00, initial stop €47.00, so 1R = €3.00 per share. Position size = €300 ÷ €3.00 = 100 shares (position value €5,000). ATR(14) = €1.50. Fees, spreads and taxes excluded.

Exit plan: sell 50 shares at +2R, trail the other 50 shares with a chandelier stop of 2 × ATR, and use a time stop of 10 sessions without reaching +1R.

1. Target for part 1: €50.00 + 2 × €3.00 = €56.00. Profit: 50 × €6.00 = €300 = +2R on this half.
2. The price later reaches a highest high of €61.00. Chandelier stop = €61.00 − 2 × €1.50 = €58.00.
3. The stop fills at €58.00. Profit: 50 × €8.00 = €400, or €8.00 ÷ €3.00 = +2.67R.
4. Total profit: €300 + €400 = €700. Blended R = 0.5 × 2 + 0.5 × 2.67 = +2.33R (check: €700 ÷ €300 = 2.33).

Comparison on the same price path: a full exit at +2R would give 100 × €6.00 = €600 (+2R); trailing all 100 shares would give 100 × €8.00 = €800 (+2.67R). If the price had instead stayed near €50.80 for 10 sessions, the time stop would close the trade with 100 × €0.80 = €80, or +0.27R.

This path favours trailing; a path that reverses just after +2R would favour the fixed target.

Common mistake

Practice activity

On paper: long entry €80.00, initial stop €76.00, 60 shares. Plan: sell one third at +1.5R; trail the rest with a chandelier stop of 3 × ATR, ATR = €2.00. The highest high after entry is €94.00, then the stop is hit. Calculate (a) the planned risk in €, (b) the price of the first target, (c) the final stop price, (d) the total profit and the blended R.

Key takeaways

• A time stop exits trades that do not show progress within a set number of sessions.
• Swing-low, moving-average and chandelier trails follow price in different ways; define the exact rule.
• Blended R = sum of (share of position × R of that part); use it to compare exit plans.
• Keep one exit plan for a meaningful sample before you judge or change it.

Next step

In the next lesson you will use weekly charts to find swing trades with wider structure and fewer decisions.