Breakout Exit Strategies: Why the Simplest Exit Beats the Clever Ones

We have to exit our trades somewhere.

The Mr. Breakouts formula gives you everything you need to build profitable breakout strategies, but none of it is finished until you decide how you get out. And exits can be as complex as entries. More complex, if you let them.

Here is what our hedge fund research proved, over and over again:

In my Mr. Breakouts model, the simplest solution almost always works best.

Which exit types did we actually test?

When we set up our breakout-strategy-based hedge fund, we did not assume anything. We coded a lot of different exit techniques:

• USD based
• Volatility based
• Percentage based
• Time based
• Several very advanced proprietary techniques

Then we ran a big assessment across hundreds of strategies, the same way we assessed optimisation inputs.

The one that kept performing best, repeatedly, across all the futures markets and across several years of data, was the USD-based profit-target.

To my not-so-big surprise.

Because that is exactly the exit I had been using in my own private breakout trading for years. And before that, for many years in my discretionary trading.

I cannot share the full comparison chart. My hedge fund team does not want me revealing the essence of our proprietary techniques, and I respect that. But the strategies using a USD-based profit-target as the only exit besides a stop-loss perform magically.

And this was not the first time. We had run similar “Profit-Target Types” analyses before, and the answer never changed:

The USD-based profit-target is the easiest to use, and the most powerful.

At least for breakout strategies built on my formula.

What else do we exit on?

On top of the profit-target, we use END OF DAY exits for day trading strategies and END OF WEEK exits for swing strategies.

So many of our breakout strategies run this combo:

1. USD-based stop-loss
2. USD-based profit-target
3. End of Day or End of Week exit

Occasionally we add a time exit on top. And that is where the story gets interesting.

Should you combine a profit-target with another exit?

I was against it. For years.

To me, combining a profit-target with an additional exit condition always felt like unnecessary complication. More moving parts, more complexity, more exposure to overfitting. My belief was that the “right” approach was to use both techniques separately, some strategies with profit-targets, others with conditional exits, for the sake of diversification. Yes, that helps with correlations and equity smoothing. But combining them? I did not believe in it.

So we tested it properly.

We took thousands of trading strategies from our hedge fund database, with years and years of true out-of-sample data, and grouped them by exit type:

1. PROFIT-TARGETS (PT) — every kind of profit-target, from USD-based to volatility-based to percentage-based to proprietary. All sharing one trait: a profit-target order placed on entry.
2. SIMPLE NON-PT EXIT CONDITIONS — End of Day, End of Week, or time-based exits.
3. A COMBINATION OF BOTH.

One important caveat: this study applies to SWING strategies only, because 90% of our hedge fund strategies are swing. With day trading strategies, we use End of Day exits only.

Then we normalised the groups, made sure each had a similar sample size, and plotted the equities on one chart. Not to compare absolute performance, but relative performance. Apples with apples.

What did the equity curves show?

Three findings, in order:

1. Strategies using alternative exit conditions with no profit-target at all did the poorest.
2. Strategies with a profit-target only did significantly better.
3. Strategies using a combination of both totally smashed everything else and outperformed any single technique.

I did not expect that.

I was, honestly, shocked. I had held the opposite view for years and the data simply overruled me.

But going through that exercise opened a completely new direction for our hedge fund. It showed us exactly where more money was sitting on the table.

That is the value of testing your own beliefs instead of defending them.

What are the Mr. Breakouts exit rules?

Four rules. That is the whole chapter, compressed:

1. Use USD-based stop-losses and USD-based profit-targets.
2. Optimise them.
3. Remember that these exit parameters count towards the “maximum 6 optimisable inputs” rule. They are not free.
4. Alternatively, combine them with an End of Day, End of Week, or time-based exit.

That third point catches people out. Traders happily optimise a POI parameter, a filter threshold, a space multiplier, and then treat the stop-loss and profit-target as though they exist outside the budget. They do not. Every optimised exit parameter is an input, and every input is another chance to curve-fit your way into a beautiful backtest and a dead live account.

Here is what the exits look like in practice, in the same simple example I use elsewhere:

//Exit at the end of the day
if marketposition <> 0 then setexitonclose;
//Set stop-loss 1500 USD
Setstoploss(1500);

That is it. No trailing logic, no adaptive multipliers, no clever regime switching.

Complexity feels like sophistication. Usually it is just overfitting wearing a suit.

Keep the exits simple, optimise them within your budget, and let the formula do the work.