Profits are a driving factor in people wanting to trade Forex. However, this market is all about volatility, and losing money might become a regular thing if they don’t find out their best Forex exit strategy before trading.
Why is an exit strategy important?
In Forex trading, entering a trade is all about predicting price action movement during a fixed period. But, sometimes due to volatility, price action can plummet way down. It is during these times that an effective exit strategy can make all the difference between stopping losses and ruining your account.
What is The Best Forex Exit Strategy?
On a general basis, no exit strategy is useless or fail-proof. It all depends on the traders dealing strategy, and each should complement the other.
In gist, the best Forex exit strategy is always the one that works for the trader. Here are some exit strategies that you might useful during trading.
- Stop Loss
One of the most common yet effective Forex trading exit strategies is the stop loss. It is a pre-decided parameter where traders automatically exit to stop any further losses on a trade.
An ideal example would be if a trader enters a trade 1.7000 and puts his stop-loss mark at 1.6000. In this case, the trader is willing to make a loss of 100 pips in order to make some gains if the price action moves up. If the trend starts to fall and reaches 1.6000, the trade will be automatically exited to make sure no more losses are incurred.
Traders can decide on their stop-loss by studying the recent support and resistance positions.
- Trendline Stop
Considered by many as the best Forex exit strategy this system uses the price action trend line as the stop-loss point. With above the trend line trades, traders set to exit as soon as the price drops hit the mark.
The good thing about this system is that the stop mark is dynamic. It keeps changing as the price moves up and reaches the entry point making desired profit. In a way it is a good indicator for both ‘stop-loss’ and ‘take profit.’
It is also the reason why this system is called ‘Trailing Stops.’
- Entry Criteria Dissolution Strategy
This strategy is largely dependent on the system of the trader. Here’s an easy example to illustrate it better:
Suppose a trader is scalping for quick profits in a volatile foreign exchange market. If during this period, the instability decreases and the price action start moving sideways, the trader should exit.
The reason for this is that the trader essentially got into the trade to make quick profits. However, if that purpose itself becomes redundant, there is no point staying in it anymore. It is a smart and effective exit system because it doesn’t wait for losses and quits because the plan has ceased to work.
Any of these strategies can be your best Forex exit strategy. It all depends on what makes you hedge more losses and works well with your other strategies!
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.