Market Pulse: How your exit method affects the result – test of different sales rules
On Fridays we end the week with stock talk and information about our stock strategies. We talk about stocks that qualify for our strategies and explain why. Everything is based on objective signals, clear criteria and a systematic selection. For those who want to see how our methods work in practice.
This week, the Top Picks Momentum stock portfolio was rebalanced. Stocks that had fallen out of the ranking were sold, and new companies with stronger signals were added. In order for a company to remain in the portfolio, a Pure Momentum rating above 50 is required. This threshold value gives the holdings room to develop further – but does not allow for losses to become too large.
I've received a number of questions about selling rules, and in today's edition of Marknadspulsen I show statistics for ten different exit methods and share my conclusions. The results explain why it sometimes pays to trade stocks with "baggy pants".
How your exit method affects results – test different sales rules
Choosing when to sell a stock is at least as important as when to buy it. For many investors and traders, the focus is on the moment of purchase itself. They chase the next rocket, the next trend break, the next undervalued find. But what happens then? It is the exit rule that determines both the profit, the loss and the risk.
Without a clear and well-thought-out exit strategy, the portfolio easily becomes a chaos of emotions, hopes and arbitrary decisions. Some sell too early and miss the big upturn. Others hold on too long and see the profits disappear. Some sell on news panic, others on gut feeling. It becomes more improvisation than strategy and the result is what happens next.
Systematic strategies contain objective exits
This is where systematic strategies come in. They are not just a way to find buys. They also include a clear and objective exit rule. It provides structure, discipline and protection against the biggest mistakes. You know in advance what to do, regardless of what the market or your gut tells you. It eliminates the most devastating part of the investment process: indecision.
In this blog post, I examine different ways to sell. By keeping the entry rule constant and only changing the exit rule, we get a clear picture of how different exits affect the result. For those of you who are building systematic strategies – or want to understand why some methods work better than others – this is a key question.
Backtesting trend following strategy
To test different exit methods, I have started with a simple trend-following strategy that buys stocks with a positive price drive. Exit occurs when the stock turns down, not while it is still rising.
Information backtest
- Period: January 2006 to July 2025
- Universe: OMX Large Cap, Small Cap and Mid Cap
- Frequency: Weekly signal update
- Entry: 200-day high
- Positionshantering: Max 30 equally weighted holdings (capital/30)
- Ranking: If there are more signals than capital, the companies are ranked according to the 6-month rate of change, with those that have risen the most being prioritized.
Explanation of tested exit methods
Below we see which exit methods I have tested for the above conditions. These are not complicated methods but common methods that often occur in trend-following strategies.
In systematic strategies, exits are always based on price. This is because price is objective, available in real time, can be tested back in time, and summarizes all available information. By basing exits on price, we avoid subjective judgments and ensure that the strategy remains clear, disciplined, and consistent.
- 50-, 100-, and 200-day moving averages (MA)
- 50-, 100- and 200-day lows
- Chandelier Exit – 5x, 7x eller 10x ATR
- Death Cross (MA50 crosses MA200 downwards)
- 7% Stop Loss (inspired by William O'Neil)
- TTR Trend Level
This article is locked.
Already a subscriber? Log in to continue reading.
Log in
50% discount first month
Get access to our Premium package with analysis, strategies and model portfolios for SEK 447.50 the first month. Offer valid until July 31, 2025. No commitment period.
Become a customer
No commitment period. You can cancel at any time.
