Is it really any harder to make money now than it was a year ago? Two years ago? The markets don't look so confusing if you take a step back from the charts. In fact, it appears that they're simply consolidating gains after a strong bull run. So why all the long faces?

Most traders chase the market around, hoping to catch a trend higher or lower. Once positioned, they ignore the warning signs and sit in small losers until they become big losers. They wait to get bailed out when it's their responsibility to keep accounts lean, mean and profitable.

It's especially tough for new traders now, because many of them are closet investors. They expect to be rewarded for a buy-and-hold strategy. The only way to defeat this mentality is to manage an aggressive exit strategy on all positions.

Hard Knocks

The rough start to this year presents new traders with the perfect opportunity to master critical survival skills. In fact, this may be the best time for newbies to learn their craft since the bear market. In the real world, tough markets produce tough, successful traders.

Easy markets carry a special hazard: They make us feel a lot smarter than we really are. This delusion eventually forces most new traders to wash out of the markets and find a less stressful hobby.

If you feel the pain when you look at your monthly statement, it probably means your exit strategy isn't working. It's a double whammy, because almost any exit strategy is better than no strategy at all. Let me be blunt: You may be a great stock-picker but stink when it comes to booking profits.

It doesn't matter whether you're using a trailing-stop system or a percentage gain/loss system, or just selling blindly at a predetermined price. In each case, you're recognizing the fallibility of your own analysis. The truth is that we're often right in the short term but wrong over time. So it makes sense to use this built-in defect to your advantage.

One of the biggest challenges in taking a good exit is a psychological one. Dollar signs blind new traders when positions move in their favor. This makes them forget their exit plan and the price chart. It's a deep-seated flaw, because it exposes their hidden sense of powerlessness.

New traders are so conditioned by a paycheck mentality that they resist creating wealth through their own means. This mind cramp undermines profits, because subconsciously, they don't really believe they deserve the money. This negative programming can take a lifetime to overcome.

Fortunately, tough markets make it easier to deal with this flaw. Profits become more precious when we see other traders fail. Their deficiencies give us the opportunity to recognize our edge more clearly and understand the strategy that got us there. In most cases, traders will discover that it revolves around an effective exit plan.

For example, I like to take my profits blindly at predetermined price targets. This strategy makes me less emotional and lets me rehearse an exit drill so I can act spontaneously when the time comes.

My exit plan tracks the wisdom of buying in mild times and exiting in wild times. As far as I'm concerned, it makes more sense to be an opportunist and predator than a blind follower of trends. So I plan in advance to sell into a buying spike or buy into a selling spike.

You'll be rewarded in many ways if you do your exit homework wisely. The most gratifying profits will come from selling into the major top, or covering into the major bottom. And this isn't as hard as it might sound at first glance, especially to new traders.

Take the time to examine support and resistance, and then guess where the crowd will take action. Over time you'll become an expert in picking market turning points. Start by asking yourself this common-sense question: Where will other traders get too scared or greedy, and want to jump ship?

It will take a solid exit strategy to stay profitable in 2005. The key to your success lies in recognizing the starting and ending points of major market swings. It's no different from the methodology used by hedge funds and money managers to earn their living every day.

There will be a time to press your positions, but it sure isn't now. So put down your technical analysis books and take a good look at current conditions. The wisdom of the masters will do you no good if you don't align your exit strategy with the reality of the market.

Lets examine several ways these tactics are put into action and how they can benefit your bottom line. Although these examples focus on protecting profits, they're just as valuable when considering stop placement.

These strategies have one thing in common: They require closing out your position without hesitation at a predetermined reward target. This means you'll exit the trade as soon as price hits the trigger point, regardless of how good or bad it feels at the time.

As you gain experience applying these tactics, you discover that short-term trends appear drawn to specific hotspots before they change direction. This underlying structure lets you visualize your actions well in advance so you can ignore the thrill of the moment and take profits without hesitation when the time comes.

But how do you protect profits if price never reaches the reward target? The best method is to fall back on a profit-protection strategy such as a trailing stop-loss. In other words, keep a fail-safe exit behind advancing price just in case the market turns ahead of schedule.

Then use it to abort the trade and even consider a "stop and reverse," in which you take a fresh position in the opposite direction.

Old Gaps

Stocks love to fill old gaps, and they'll sometimes wait months or years to do so, as the above chart of American Power Conversion (APCC:Nasdaq - commentary - research) shows. Look back on the chart for significant gaps that the current trend is approaching. Then exit the trade immediately when price hits the fill level. Afraid you'll miss part of the move? Run a trailing stop under the position as soon as it fills the gap. That way you'll get taken out on the first reversal.

Gaps are especially hard for opposing trends to overcome when they transit a wide-percentage range on heavy volume. Once stocks fill these broad gaps, they'll often reverse and start substantial movement in the opposite direction. So the fill point is an excellent place to take the money and run.

Capture the Flag

"1-2" setups such as those shown in the above chart of KLA-Tencor (KLAC:Nasdaq - commentary - research) can really mess with our heads. We enter a long position when it breaks out of the bull flag and then notice the stock will complete a cup-and-handle pattern when it trades to $50. So we fail to catch the considerable profit from the rally off the flag in hopes of catching a larger-scale breakout.

A better strategy is to take profits blindly when the stock reaches large-scale resistance at $50. We can then watch for the breakout from the sidelines, treating the cup-and-handle as a separate trade that requires its own buying signal. The good news is that if the rally falls apart, we've already pocketed a big chunk of the move.

Measured Moves

The measured move lets you estimate how far the next leg of a rally or selloff should carry. The calculation begins by measuring the last trend before a simple correction, such as ChevronTexaco's (CVX:NYSE - commentary - research) bull flag. In theory, the distance from the flag low to the breakout high should be equal in length to the rally that precedes it. This translates into a simple AB=CD formula.

You'll be amazed at how often prices move in measured waves. The trick is to watch it unfold and then have the courage to exit when price hits the target. Still not convinced? See if you can find other support or resistance that confirms your target. In this illustration, notice how the measured move corresponds exactly to whole-number resistance at $60.

Beware of Bar Expansion

Most times you can't predict price-bar expansion in advance, but it's a great exit signal when it comes. Let's say you were short Manor Care (HCR:NYSE - commentary - research) last Friday when it sold off in a wide-range bar. I'll bet your first instinct was to pat yourself on the back and think about the next big move down. But if I were short, I'd be using that bar to cover my position and take profits.

Why? Because big bars create short-term overbought and oversold conditions. They're often followed by days or weeks of contrary movement that retraces the price levels crossed in the bar. I'd rather have that money in my pocket than wait for the next leg of a selloff that may never come.

62: An Important Number

A little Fibonacci goes a long way in finding profitable exits. The above chart of Anadarko Petroleum (APC:NYSE - commentary - research) provides an example. Corrections are often followed by bounces that reach 62% of the last selloff leg. This gives you a magic number to exit a long trade after buying a falling knife. Take the time to confirm your exit by looking for breakdowns from topping patterns and high-volume gaps. These will pinpoint where selling pressure will re-exert its influence.

Exiting trades using price retracements can be difficult psychologically. After all, these are telling you to get out when you're sitting on a profit in a rising market. But it isn't so hard to do once you realize that letting your profits run into a major resistance level is rarely a good idea.