Professional forex traders often say exits are more important than entries. They are at least as important and you should have a plan, writes Steve Kruse.
Professional forex traders often say exits are more important than entries. Obviously, the entry point is critical, but your exit strategy is the difference between having a long career in forex trading or a very short one. The primary reason is that if you pick a random place to exit or use emotions to get out when it feels right, you have absolutely no way to objectively measuring the accuracy of your trading plan.
Winning percentage is not the best gauge because every trader will have winners and losers. Professional trades will often note that their best trades were losing trades that they managed to limit. Likewise, winners can be disappointing, if the trader didn’t maximize its potential.
So, let’s get to it. FX traders have access to many indicators and as I have found out the hard way, one can be overwhelmed with the plethora of choices. There isn’t one strategy that is better than another, however, it’s a fact that you better have one and you better stick to it all the time.
The most frequently used tools to exit a trade are moving averages and Parabolic SARS. They both keep you in a trade for a substantial move, especially when the initial move was a spike up or down. The downside is that they can penetrate the exit price and then reverse back to the previous trend; therefore, limiting your profit. But used consistently, it’s an objective way to let the market take you out.
Another strategy is to have a predetermined price to take half your position off and then move your stop to breakeven on the balance. This has a very nice psychological advantage as once you hit your initial target, you are then playing with house money. Then you can use another tool to take you out of the balance as the market moves your way.
A third more aggressive strategy is to build a position by initially entering a small position, then as the market moves in your favor, add to your position and move your stop up accordingly to a breakeven level. This has the advantage of producing the largest pip gain on a move that had follow through and stays in the current trend. The downside obviously is that you may get to your max position and a pullback takes you out of the trade at breakeven. But it does give you the best reward: risk ratio over a single position.
These strategies can be used on different timeframes depending on whether you are a day trader, swing trader or have a much longer time horizon. The bottom line is that by using a predetermined exit strategy you are not trading on emotion or impulse.
Create an exit strategy based on your overall approach and backtested results and stick to it.
For further details on how to specifically set up your platform to customize what strategies will fit your personality and lifestyle, please contact me at: firstname.lastname@example.org.
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