If I had to list one thing that is misunderstood most often when developing trading systems it would be how exits affect overall system performance.  Almost every trader I know has fallen into the "trading trap" of trying to maximize profits by searching for a "highly accurate" entry signal.

In this mini-eBook we discuss the 4 main types of exit:

• Discretionary
• Inactivity
• Risk Management
• Profit Taking

With examples from a simple trend following system we will demonstrate how, just by changing the exit strategy, a system's performance can be adjusted to suit your personality, objectives and requirements. 

The 6 systems we analyze are all based on the S&P 500 and coded in TradeStation®:

• System 1 - Basic entry with fixed time exit
• System 2 - A high winning percentage exit
• System 3 - A low winning percentage exit
• System 4 - An inactivity exit
• System 5 - An additional risk management exit
• System 6 - An additional profit protection exit

The historical hypothetical results from TradeStation® of each system will be compared to see how the exit strategy affects the overall performance of the system.