Trade Exits


There is another old saying: “you can never go broke taking a profit.” The
Turtles would not agree with this statement. Getting out of winning positions
too early, i.e. “taking a profit” too early, is one of the most common mistakes
when trading trend following systems.
Prices never go straight up; therefore it is necessary to let the prices go against you if
you are going to ride a trend. Early in a trend this can often mean watching decent
profits of 10% to 30% fade to a small loss. In the middle of a trend, it might mean
watching a profit of 80% to 100% drop by 30% to 40%. The temptation to lighten the
position to “lock in profits” can be very great.
The Turtles knew that where you took a profit could make the difference between
winning and losing.
The Turtle System enters on breakouts. Most breakouts do not result in trends. This
means that most of the trades that the Turtles made resulted in losses. If the winning
trades did not earn enough on average to offset these losses, the Turtles would have
lost money. Every profitable trading system has a different optimal exit point.
Consider the Turtle System; if you exit winning positions at a 1 N profit while you
exited losing positions at a 2 N loss you would need twice as many winners to offset
the losses from the losing trades.
There is a complex relationship between the components of a trading system. This
means that you can’t consider the proper exit for a profitable position without
considering the entry, money management and other factors.
The proper exit for winning positions is one of the most important aspects of trading,
and the least appreciated. Yet it can make the difference between winning and losing.

Turtle Exits
The System 1 exit was a 10 day low for long positions and a 10 day high for short
positions. All the Units in the position would be exited if the price went against the
position for a 10 day breakout.
The System 2 exit was a 20 day low for long positions and a 20 day high for short
positions. All the Units in the position would be exited if the price went against the
position for a 20 day breakout.
As with entries, the Turtles did not typically place exit stop orders, but instead watched
the price during the day, and started to phone in exit orders as soon as the price traded
through the exit breakout price.
These are Difficult Exits
For most traders, the Turtle System Exits were probably the single most difficult part
of the Turtle System Rules. Waiting for a 10 or 20 day new low can often mean
watching 20%, 40% even 100% of significant profits evaporate.
There is a very strong tendency to want to exit earlier. It requires great discipline to
watch your profits evaporate in order to hold onto your positions for the really big
move. The ability to maintain discipline and stick to the rules during large winning
trades is the hallmark of the experienced successful trader.

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