Yesterday we talked about using closing stops, and how the end-of-day price was the most important price of the day. That's why we want to wait as late as possible in any day before making an exit. But the principle also applies to trades that are going in your favor. If you're able to wait until the end of the day to lock in profits, you may squeeze out a bit more profit. Let's take a closer look.

We frequently talk about the fact that discipline is required to truly be a successful trader, and we're going to stick with that philosophy. The most basic disciplines are to take profits when you reach your target, and cut losses when you hit your stops. If you can do that, you've mastered the hardest part.

To make an exception to those rules implies that they aren't really rules at all. Is there ever a justified reason to make an exception? Not really, since the first exception makes subsequent exceptions much more likely. But if you must, there may be one understandable (yet not exactly justified) reason to temporarily ease on the rules. That exception? If the trade is hitting or surpassing your price target that day, and you're going to close it out by the end of that day, then it may be to your advantage to wait till near the closing to exit your trade.

Why an exception such as this? When you get a major price movement in a single day, the closing price is typically at the high or the low for the day right at the close. Notice I said on a day of major price movement. A minor change of half of a percent by late in the session may result in no net change at all for the day. But if a stock has increased (or decreased) by a relatively large percentage by mid-day, there's a good chance it'll keep moving that direction as the closing bell approaches. By waiting till very late in the session, you may be able to squeeze out a bit more profit. (Obviously this idea only applies to trades that are becoming profitable. If the trade is going against you in this manner, get out as soon as possible.)

As always, the idea is best illustrated with an example. Let's take a look at some of the days of biggest change for AMGN. Take a look at the closing price on those days that saw big changes from the previous day - they're at the very ends of the price bar. If you had correctly foreseen the price direction, your most profitable exit would have come at the end of the day.

AMGN - Daily Chart

Why is this? There are several probable reasons. The most likely is that euphoria is self-feeding. Investors see a little growth, and start buying, which incites more growth, which incites more buying...etc. In other words, price increases beget more price increases. It's not until the day is over that euphoria dissipates and reality sets in. That's why it's important that you make your exit at the end of THAT day, and NOT the next day. All too often, those explosive days often result in explosive reversals the following day.

Are there exceptions to the rule that big days close at the ends of price bars? Absolutely. Making this trading rule exception is not for the faint of heart, nor for the trader who can't handle regret. So, use caution if you choose to make exceptions to your own rules. One simple solution could be to turn your target price into a stop-loss price when your target is reached. Then if for some reason things turned against you, you're still going to make a profitable exit. Remember, this price-target exception only applies if the trade is moving in your favor and if you close out the position at the end of that day.

Price Headley is the founder and chief analyst of BigTrends.com.