Foreign Exchange: Exiting Positions At A Correct Time

The presented post covers 1 from the most important (in author’s opinion) aspects of buying and selling in general and Forex buying and selling in particular – managing of orders and positions. This includes choosing entry points, making decisions about exit points, stop-loss and take-profit with the trader. I hope this post will help new traders, who just began to work with Forex, and also to experienced traders who trade regularly and frequently make or loose their money for the market.

When I began to trade Forex and produced my initial big losses and profits I began to notice when really important thing about the whole buying and selling process. While the right time to enter a position was rarely a issue for myself (nearly 80% of all my open positions had gone into the “green” profit zone), the problem was hidden in the determining the right exit point for that position. Not merely was it essential to cut my danger on the potential losses with stop-loss orders, but to limit my greediness and take profit when I can take it and make it as high as I can. There are several recognized guidelines and ways to enter a correct position at a correct time – like main economic news releases, global world events, technical indicators combinations, etc. But while the entering into a position is optional and trade can decide to miss as several good/bad entry point moments as they wish, this is untrue if we talk about exiting a position. Margin trading makes it impossible to wait too lengthy with an open position. A lot more than that, every open position inside a certain way limits trader’s ability to trade.

Choosing the good exit points for positions could be an easy task if only the Forex trading market wasn’t so chaotic and volatile. In my opinion (backed by my buying and selling knowledge) exit orders for every position should be toggled continuously with time and as the new industry data (technical and fundamental) appear.

Let’s say, you took a short position on EUR/USD at 1.2563, at the time you might be taking this position the support/resistance level is 1.2500/1.2620. You set your stop-loss order to 1.2625 and your take-profit order to 1.2505. So now, this position can be regarded as as an intraday or 2-3 days term position. This means that you ought to close it before it’s “term” is over, or it will grow to be a very unpredictable position (simply because industry will differ greatly from what it was at the time you have entered this position) Following the position is taken and initial exit orders are set, you have to follow the marketplace events and technical indicators to adjust your exit orders. Probably the most crucial rule is always to tighten the loss/profit limit as time goes by. Normally if I take a middle term position (2-4 days) I try to lower the stop and target order by 10-25 pips every day. I also monitor global events, trying to lower my stop-losses when extremely essential news can hurt my position. If the profit is already quite high, I try to move my stop-loss the entry point, making a sure-win position. The main idea here is always to discover an equilibrium point among greed and caution. But as your position gets older the profit should be a lot more limited and losses cut. Also, trader should always remember that if the marketplace began to act unexpectedly, they have to be even a lot more cautious with exit order, even if the position is nevertheless showing profits.

Every trader has their own trading strategy and habits. I hope this article will make its readers believe about such an important aspect of investing as the exit orders and this will only improve their trading results.

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