Exits after a Range Expansion in Futures trading.

Today was an Aha day, with the Nifty moving up 17% with just 55 seconds of trading. What could it do if we traded for full five and half hours?

On a more serious note, I will try to discuss the issue of exits, which causes difficulties and consternation among traders.
First, a definition of range expansion. The market moves strongly in one direction giving a move which is much above average.
As an example: suppose the Nifty has an average movement of 65 points every day. On any one day it moves 195 points in one direction. This is three times the average. It qualifies as a range expansion. I call it an RE bar.
When the market is moving up slowly but steadily, traders can apply trailing stops to manage their exits. These stops can be formed by short term (3 to 8 period) moving averages, parabolic SAR, pivot points (previous high/low). Such stops ensure that the trade is protected, while also trying to capture as much of the trend as possible.
The problem arises when the market makes a range expansion in your favor. Now, the trailing stops become redundant since they are likely to remain much lower than current market prices. In such cases the trader needs to manage her exits without having reliable technical tools. Some suggestions for exit management are:

1. Quick, take partial profits. If you are trading in multiple contracts, take some money off the table.
2. Push your stops close by, below the low of the latest bar. If the market keeps on moving up, you will get the benefits of the move, while protecting most of your open position profits. If the latest bar is the RE bar, then move the stops to the mid point of the RE bar.
3. Have a profit target based on previous resistance. Look at the chart for the past 12 or even 24 months. Is there significant resistance above current levels? If there is, that zone can become the profit taking zone.

Have an open mind, since managing trades when they suddenly move in your favor is more difficult than managing losing trades.

Ready for big move in stocks, futures & options

No matter what you own, be ready for a big move in stock futures, index futures, stock options, index options and stocks. If you are prepared to take some risk, wait for a few days, the rally may continue more than we imagine.