Your Forex Exit Strategy

Although most people consider a forex entrance strategy to be of upmost importance, a forex exit strategy can be just as important-if not more important. Along with a money management system, an exit strategy can determine whether or not you have any gains in the market.

So what things do you need to know concerning a forex exit strategy?

For starters, initial stops are important when considering forex trading. The initial stop can get you out of the trade in the beginning if something goes wrong. While a lot of systems have trailing stops and initial stops, a trailing stop is generally used later on in the trade if a trough or peak has formed.

With an initial stop as a forex exit strategy, a trader should have some breathing room. However, that room won’t be too large. If you are using a fixed percentage for your money management then the trade size will be small if the risk is too large.

Trailing stops are another kind of forex exit strategy. The trailing stops help protect your profit. They give you some elbow room so that small fluctuations won’t stop you out of the trade. They also protect your profits by trailing upwards in a long trade. In essence, you exit when the trade works against you.

Another forex exit strategy that is used a lot are breakeven stops. If you go into a trade with an initial and trailing stop and the currency goes in the direction of your trade, then you might use a breakeven stop which means that the price will be the same or just a little bit more than the entry price. You can decrease drawdown and improve your gains using this kind of exit strategy.

You can also use the take profit strategy in order to reduce drawdowns and improve your profitability. The market’s volatility can mean that the prices fluctuate and your trailing stop can take you out before you’ve made a profit. However, you can use the take profit strategy when a predetermined target has been reached.

Sometimes, a system will leave a trade before an economic announcement is made. So what constitutes a major economic announcement? This is when the announcement might cause a large, albeit temporary, move in the market. An increase in volatility usually accompanies such an announcement. Sometimes this happens when the figures are announced that are substantially different than what was expected to be seen.

Should this happen, then you might be taken out at your trailing stop and there could even be gapping. For that reason, you might want to get out at the current price instead of being exited at your trailing stop.

It is just as important to have an exit strategy as it is to have an entrance strategy. After all, it is your exit strategy that will probably determine if you make a gain and exactly how much that gain might be. While the excitement of getting in can sometimes overshadow the necessity of getting out, the forex exit strategy should not be minimized. If you’re not sure which strategy you want to use you might want to consider using simulated forex trading to try out some ideas before deciding on particular strategy. This can be a good way of knowing what system is going to work.