October 7, 2013

The Exit Point of Forex Strategies

Forex Strategies for Success

Before one is able to trade effectively on the forex market there are number of tasks the trader must undertake.  One of these is to develop successful and sound forex strategies.  By creating these forex strategies, and keeping to them, one reduces the chance of incurring losses.  However, there are no perfect forex strategies and your personal plan should be linked to your strengths.  By doing this you increase your chance of profits.

How to Exit Forex Strategies Successfully

A question many new traders ask is how they enter and exit trades effectively.  Entering the trade is simple enough, however how does one know when to exit the trade while making a profit.  The majority of new traders prefer letting the trade run if it is a successful trade with the hopes of a greater outcome.  This can work, but more often than not will result in losses.  Rather one should exit the trade when you feel you have made an advantageous profit as emotional trades can be detrimental to one’s accounts.

As the forex market is a volatile one there is no guaranteed way of knowing whether your profits are to increase or not.  The market has been known to swing without warning, and it is in these instances that many traders have suffered fatal losses.  The more experienced traders’ value locked profits over a potential profit in order to ensure steady earnings.

The Techniques that Traders Use to Exit Trades

Traders can integrate exit strategies into their personal plans of action, but there are three main exit strategies which mature traders use when trading.

The first is to use trailing stops as an exit strategy.  Trailing stops are useful tools as they position your stopping point to when your trade reaches a profit.  It is important one sets these stops correctly otherwise one may suffer extreme losses.

The second exit strategy which may be employed by forex traders is to use forex charts and technical analysis to determine the most effective exit point.  This is suited to experienced traders who feel comfortable with moving averages and are willing to use the 5 period and 2 period averages to pinpoint these exits.  Using these larger time frames is not always advised, particularly for new traders, as the trade outcomes are not always accurate.  Of course, the longer time frames do allow for greater profits making the choice dependent on personal preference.  When employing technical analysis to determine one’s exits it is best to stick to the point already chosen.  Should one move off this point, once the trade has already opened the chance of detrimental losses increases.

The final exit strategy is exiting using a 2 period RSI, which is very similar to the moving averages exit strategy.  In long-term trades the RSI may cross 70; this is when you should exit the trade.  In short-term trades an exit should occur when the 30 line is crossed.  By using a short-term RSI you could leave the trade too soon limiting any profits made.  However, the risks are lower with the short periods and information is more precise.



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