A lot of FX traders spend a lot of time looking for the best entry strategy for their FX trading. However, these FX traders often neglect to consider the importance of a good exit strategy. There is no point in being able to get onto the FX market if you do not know when to get out of the market. It is important that you know about FX exit strategies that deal with losses and profits. Knowing both of these FX exit strategies will ensure that you always exit the market at the right time.
The FX Stop Loss Strategy
A stop-loss strategy is a common method of controlling risk and exiting a trade if it should reach a point where you are unwilling to take further losses. If you purchase the USD/AUD at 1.1000, and you place a stop-loss at 1.0950, it means that you are willing to risk 50 pips before the stop rate will take effect. A stop loss is determined at the time of your FX trade and is calculated beforehand.
This level may be set on resistance or support levels. These levels can also be based on non-traditional resistance and support levels. This would include trend line support or Fibonacci retracing levels. If you decided to go long on the AUD/CAD, you could place a stop with the use of Fibonacci levels which would be based on the last big price swing that currency experienced.
Using Timed Exit Strategies
This is a fairly straightforward method. Before you take a position, you should determine the length of time you wish to remain in the trade. This could be based on personal issues, such as time limitations, or based on technical data. If you make use of technical timing to exit a trade, it may require you to exit at the end of the Asian or US session. At times it may make use of averages. If, for example, you determine the average day trend lasts for about four hours in a pair before it starts a reversal, you can make use of this as a time constraint on that position. You will have to exit once four hours from the commencement of the trend has passed. You could use the Fibonacci time zone indicator. You may also choose to exit a trade before a major news announcement is due.
Exits Based on Trading Strategies
If you run on a finely tuned strategy, you require a finely tuned exit method. This may include a combination of exit forex strategies, or a specific exit for various situations. An example is a strategy for when there are major news announcements such as the non-farm payroll report. In pairs that include the US dollar, this announcement could cause big swings. You may want to capitalise on the movement in your currency pair when this report becomes available. Once publication of the report has passed, you will have no need to hang on to your pair as it was based on the outcome of that report.
In this case you may have a range of exits that you could use. The first one could be a stop-loss which sets a maximum loss you are willing to absorb. You could use a trailing stop which is when the rate moves in your direction, you set a stop. An alternative strategy could be to lock in your profits in the instance where it is possible for the trend to be reversed.
It is important for you to have exit strategies in place based on the different scenarios that could take place.
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