Forex Exit strategy
In Forex trading, the forex exit strategy is very important. Many people, engaged in forex trading or any other trading, do not realize the fact that an exit strategy is as important as any other part of a trading system. The other parts of a system have their importance, too, but the overall smooth operation of the whole system depends a lot on the proper implementation of the exit strategy.
It is important to know five points about the forex exit strategies. If you are capable of assimilating these five most important strategies, you can pick up almost any other rule about the trade when you learn a new forex trade.
1. Trailing stops is one sort of exit strategy used in the forex trading system. This type of strategy is used for protecting profits, which is done in two ways. Firstly, this system will not make you drop out of the trade even if there are minor fluctuations. Your profits will continue to run, and this is important for you if you are in the trade. Secondly, they are trailed upwards, which protects your profits when the trade is going in your direction; it also helps you to exit without loss when the trade goes against you. That means that the trailing stops never go backwards; if they were to do so, it would not be possible for them to protect a client's profits.
2. Initial Stops is an exit strategy which is also important in the forex trading system. This system is usually used at the beginning of the trade if things go wrong at the very beginning. Many systems use both the initial and trailing stops in their trade because a trailing stop can be applied only after the trade has been on for a certain length of time. The technical points on which the trailing stops depend come into play only after some time has elapsed after entering the trade.
3. Another forex exit strategy is the 'Take Profit' strategy. Many forex systems use this strategy of exiting positions, fully or partly, when a certain target has been achieved, because the volatility of the market causing fluctuations may lead to the enforcement of the trailing stop before you make any profits. It is therefore assumed that using this exit strategy may help to improve profitability.
4. The fourth exit strategy is the use of Breakeven stops. If you are in a trade and the currency is moving in your direction, and you have the initial and trailing stops in place, the trailing stops maybe moved to break even which means that you get the same as your entry price or something slightly better. This forex exit strategy is used to improve profitability as well as lessen drawdown.
5. In forex trading, many systems will exit a trade within a certain amount of time before an important economic announcement is made. By a major economic announcement we mean an announcement which has the ability of causing a movement in the market, which, in spite of being temporary may increase the volatility of the market. This usually happens if the figures announced do not match the expectations of the market. If this happens, it is likely that you are taken out at your trailing stop and that may not yield the expected results. Therefore, it is better to move out at the current price rather than wait for the waves created by the announcement.
So, these are the five different forex exit strategies which you must know if you are in the trade, especially the reasons why they are used. Now you can suitably put them into practice.