Exit Strategies

Filed under: Learn Forex Trading |

 

While most forex traders focus on getting good entries for their trades, an often-overlooked element of trading is the importance of the exit strategy. There are a number of ways that you can exit your trades, and I’d like to talk you through a few of these strategies right now.

 

Stop Losses and Targets

To begin with, the most important exit strategy is your stop loss and take profit (target) levels. These should be predefined before you put your trade on so you know the level at which you will walk away if you are wrong, and the level at which you will take profits if you are right (and not be greedy!). You could leave it at that and operate a “set and forget” type system, or you could add other elements to you exit strategy.

 

Moving to Breakeven

Another thing you could do to protect your bank could be to move your stop loss to break even (this is the level at which you entered the trade) once you are in a certain level of profit. Personally, I sometimes move to breakeven when I am in profits of one or two times my risk. This protects the bank and in effect gets you in on a free trade. However, I only really do this if I am aiming for a target of over two times my risk.

 

Profit Taking

If you are aiming for a target of three or four times your risk (or more!), another thing you could do is bag some profits at a certain level. Fore example, once you are in profits to the tune of three times your risk, you could move your stop loss to the position which represents a profit equal to that of your original risk. That way, if the trade suddenly heads in the wrong direction, then you will still at least make a little profit.

 

These are just some of the possible exit strategies that you could use. Others include trailing stops, price action signals, and using support/resistance levels. But whatever you use, the number one priority has got to be to protect your bank – and to do this, automatic stop losses are essential.

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