Rule 1: Stop loss exit — cut losses without negotiating
The stop loss is not a suggestion. It's a contract you make with yourself before entering the trade.
The baseline rule in momentum investing: if price drops 7-8% from your entry price, you exit. No waiting, no "I'll give it one more day."
Why 7-8%: in a strategy with a minimum 2:1 R:R, if the target is 15-20% and the stop is at 7-8%, the math is favorable even if you're only right on 40% of trades. If you widen the stop waiting for a bounce, you invalidate the logic that made the system profitable.
Structure-based stop (more precise than a fixed percentage): place the stop 1-2% below the EMA21, EMA50, or the pivot of the base that broke before the breakout. If price closes below that level on volume, the setup that motivated the entry no longer exists.
What not to do: average down. If the position is at a loss and you add capital because "it's cheaper now," you're doubling your bet against the market.
Rule 2: Target exit — planned profit-taking
If you defined R:R before entering, you already know your target. A 2:1 R:R with an 8% stop implies a 16% gain target. When price gets there, you close — or take partial profits.
Scaled exit:
- At 15-20% gain: close half the position and move the stop to your entry price (breakeven). From there on, "the house is paying."
- At 25-35% gain: close the rest, or let it run with a trailing stop if momentum remains strong.
The scaled exit avoids selling too early (when the trade could continue) and never selling (giving back all the gain).
Rule 3: Technical signal exit — the trade tells you it's done
- Price breaks EMA21 on high volume: during the advance, EMA21 acts as dynamic support. When it breaks below on above-average volume, institutions are exiting — it's not a normal pullback.
- Price breaks EMA50: more severe. If price closes below EMA50 on volume, Stage 2 may be ending. Reduce or close the full position.
- Parabolic move: if price rises 40-50% in a few weeks without correction, the risk of sharp reversal is high. Take early profits even if momentum looks strong.
Rule 4: Pre-earnings exit — managing event risk
Earnings are the highest binary-risk event for an open position. In one day price can rise 10% or fall 15%. The scanner warns when earnings are within the next 21 days.
The practical rule: if you have a 15%+ gain and earnings are within 2 weeks, consider closing at least half beforehand. If the result is good, you can re-enter. Holding a full position through earnings is betting on the outcome, not investing with methodology.
Exit decision tree
- Did price drop 7-8% from your entry? → Close. No negotiation.
- Did it break EMA21/50 on high volume? → Reduce or close.
- Did price reach the target (R:R 2:1 or better)? → Take partial profits, move stop to breakeven.
- Did price rise 40%+ in a short time (parabolic)? → Take early profits.
- Earnings within 2 weeks with an open gain? → Consider reducing.
How this applies to the scanner
The Shark Report Trades Panel automatically suggests Stop Loss and Take Profit for each signal, based on your configured portfolio size. Those levels are the starting point — adjust them based on the specific asset's technical structure before confirming the entry.