There’s a distinct group of people in forex trading – they do ok, they probably make some money every week. They spend a lot of time comparing signals, calculating and working out their entries – and almost no time at all considering their exit signals.

We all can be guilty of it – decide to place a trade and then completely overlook the second part, deciding on the stops, take-profit or stop-loss – and this part is just as important in determining your profits (or limiting losses) at the end of the day.

An Exit System
With the emphasis hopefully on a rule-based formulation, not guesswork or sheer panic…

First, and best – I would suggest – is to derive your exit signal in exactly the same way you derived your entry signal, giving you a straightforward yes or no as to when to exit. If you don’t set (relevant) stops and consider the action on a real-time basis – as I tend to do, more and more – this is a logical set-up. And if you do trust indicators, or your own patent combination of indicators, to provide your signals, then why look any further?

Or, alternatively, always set the same limit order to take profit at the same level, and stick with it. This is a risk/reward calculation and relatively inflexible for all that. Trailing stops, to lock in profit, (though never to attempt to recoup losses on a doomed trade) are operating with the benefit of hindsight and do have more to recommend them as a strategy.

There are occasions – more or less, depending on your style of forex trading – when time of day will play its part. Some trades, especially on a negative carry, require a close look when it’s getting towards your broker’s cutoff time, as to whether to exit or roll over to the following day.

Instinctively, I would always incline towards a consistent recipe, derived from a plan, and preferably one put into operation before the trade is placed. Once in the middle of a trade, the thinking is never quite as clear, even if discretionary input is improved by actually being able to see the situation as it develops.

Getting an exit strategy is a key factor in becoming a decent trader, somewhere near the pro level – it’s not enough to say “Well, I’m still in profit, so I’m going to stick with it…”

What’s your favored strategy for exiting a trade?

One Response to “Exiting a Forex Trade”

1. penny stock picks says:

   February 15, 2009 at 4:00 pm

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