Fixed targets, trailing stops and partial exits — matching the exit method to the strategy's return profile.
Key takeaways
- Fixed targets suit mean-reversion; trailing exits suit trend following.
- Partial exits reduce regret but also reduce expectancy in trend systems.
- Whatever the method, define it before entry.
Exits determine the distribution of your returns more than entries do. Two traders with identical entries and different exit rules will have entirely different equity curves.
For mean-reversion strategies, a fixed target near the expected reversion level is usually optimal — the edge decays after that point, so waiting adds risk without expected return.
For trend strategies, fixed targets are destructive. The profitability of trend following depends on a small number of outsized winners, and a target caps precisely the trades that pay for everything else. Trailing stops, however uncomfortable, are the correct tool.
Partial exits are a compromise: take some off at a target, trail the rest. This lowers emotional strain and often lowers expectancy slightly. That trade is acceptable if it keeps you executing the plan — a slightly worse system followed properly beats a better one abandoned.
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