Support and Resistance for Exits

Another method for profit taking exits that I've used extensively, is support and resistance. The use of this type of exit is basically a discretionary trailing stop.

As discussed in one of the tutorials, price tends to make 1-2-3 movements making obvious retracements and pivot points. These are the areas which you can use to 'ratchet' up your profit exit.

This can be a very effective method for placing exits, since the exits are placed at natural price points, created by price itself, that may be very difficult for price to break through, thus giving price the chance to run further in your desired direction.

However, there will many times while using this method, that you will see price break through the area, hit your stop and then immediately proceed in your desired direction, except this time without you aboard. Market Makers and Specialists know these areas and have stops right below or above them and they will sometimes push price to these levels before proceeding in the opposite direction.

Again, no exit method is going to be perfect. That's why I think using several methods is the way to go. Diversify your exits.

Using this method will of course, occasionally leave you with a very small profit since support and resistance will at times be created by price very close to your entry.

Like the use of trendlines, this day trading method of exits requires you to be in front of your screen all day long.

The following chart is an example of price creating three separate lines of support, which would've allowed for exits to be moved up in order to lock in profits. Price never breaks through support during the day.

Support and resistance on stock chart of CCL

JNPR on the chart below, breaks out, gets past the stop and proceeds throughout the day to give very clear retracements that could be used for exit placement. JNPR finally at the end of the day weakens and drops through support, which would've resulted in a profit exit.

Retracements on chart of JNPR

As you can see support and resistance can be used to create dynamic exits, which through discretionary adjustment can make very effective profit exits.