If you’ve traded even a little, you probably already know that getting out of forex trades is a lot harder than entering them. It’s harder both emotionally and logically. For this reason, this chapter will give you some good general guidelines to use when planning a trade exit; These are the same principles that I use. However, keep in mind that every trade is different and there is no ‘strict’ rule that I can give you, which will magically let you exit every trade perfectly. .
Sometimes you will leave some money on the table, because you cannot squeeze every pip in every move, and sometimes you will lose, these are all part of being a forex trader. . If you let them affect you too much emotionally, you will quickly deplete your account.
The psychology of exiting the trade…
I would like to start by discussing the psychology of exiting a bit, because usually after exiting a trade, traders are the most emotional and are at risk of making “stupid” trading mistakes. “Emotionally motivated.
First, you need to ACCEPT the consequences of your exit. However you got out; win, lose or draw, you absolutely have to do EVERYTHING in your power to not let the outcome of that trade hit you too hard and make you do something stupid like go back to the market to’ revenge’ for the trade you just did. astray. Forex traders also often return to the market right after a good winner because they are overconfident and their risk perception drops dramatically after a winning trade, or especially after a series of trades ends… this is why many traders experience the biggest draw-down period immediately following their peak profit period.
Most importantly, just remember that you will be the most emotionally ‘fragile’ as soon as you exit the trade. Whether it’s a winner, a loser or a breakeven trade, the feeling of moving from live to sideline trading, can have a profound effect on a person. You need to be aware of this and make sure you don’t let it negatively impact your trading. The most effective way to do this is to simply remove you from your computer or forex trading platform for a day or two, or even the rest of that week. You need some time for your emotions to cool down and return to an objective fx trading mindset after exiting the trade.
Exiting a trade includes not only profit and ‘reward’ targets, they also include stop loss and to be honest, you should spend more time thinking about stop loss than about profit target . How you manage your trades will determine whether you will be successful in trading long term and placing your stop loss properly is an important part of managing your trades properly.
The stop-loss positions for the various price action signals in this course have been covered in previous chapters, so please refer back to them if needed.
The following lessons also include good discussion of stop loss placement…
- The first thing you should think about when planning your exit strategy is to place a stop loss order.
- Pay more attention to your stop loss and the potential risk of a trade than the potential reward.
- If you focus on risk and manage risks and losses sensibly, returns will tend to take care of themselves.
- Most traders are too focused on rewards and profits and this causes them to lose money.
- First of all, you are a risk manager, not a ‘profit making machine’, because you cannot make a profit if you are not focused on risk.
Important Note: You should NEVER move your stop loss away from your entry point, no matter what. This sounds like a fundamental sin in forex trading and it’s a quick way to blow your account away. Stop loss should only be moved to reduce your trade risk, to break even or to take profit by placing a stop.
I don’t really like exiting breakeven most of the time .
Most of the time, moving to breakeven is the wrong thing to do, for a variety of reasons…
- First of all, moving your stop loss to the same level you just entered doesn’t really make sense without a good price action-based reason to do so (more on this later)
- Going to breakeven because of ‘fear’ or simply because you have some ‘rule’ that you follow that requires you to go to breakeven, also makes no sense and is really just a result of your fear of loss.
- Ask yourself this: How many times have you moved to breakeven only to see the market turn around and stop you from stopping and then moving in your favor?
- YOU MUST GIVE YOUR TRADES ROOM TO BREATHE! IF there is no reason to tighten your stop or move to breakeven, don’t.
A very important point to remember is that by exiting at breakeven or manually closing your trade before it reaches your stop loss or profit target, if for no reason, means is that you are eliminating the potential of the trading strategy/advantage to play. and work in your favor.
If you don’t have a logical reason to move to breakeven, you’re probably doing it based on fear. You can’t be afraid of losses, because losses are part of trading, and the degree to which you try to avoid them, will only make them worse in the end. You must learn to accept losses and manage them by controlling risks appropriately and not over-trading. You will never make money in the market consistently until you learn how to let a trade go without interference, this requires patience and discipline, there is no ‘easy way’. easy’ for it.
While I generally don’t like moving to breakeven, there are sometimes valid reasons to move your stop loss to breakeven. Here are some logic and price action-based reasons you might decide to convert your stop loss into breakeven:
- If an opposing price action signal on the same timeframe you entered causes caution and a change in market conditions, you can consider it a logic-based reason to move to breakeven or take profits. /close transaction.
- If the market approaches an important chart level and then starts to show signs of a reversal, you should take it as a signal that the market might actually reverse and then trail your stop to breakeven. or take profit / close the trade.
- If a big news announcement like Non-Farm Payrolls is coming and you hit a big profit, you may want to switch to breakeven or take profit. Volatile news announcements like these can sometimes change market conditions.
- If you have pre-planned an exit strategy that involves letting the trade run, you can move to breakeven as part of a trailing stop loss technique . Usually, in these situations, breaking even is just one step in the trail; you will then trail the stop up and up (or down and down) to take more profit when the trade is in your favor. This only works during strong, often low volatility trends (see the trends chapter for more on different types of trends).
Traders tend to struggle to take profits at the right time and for the right reason; it’s hard to do. The psychology behind profit taking is quite interesting…
It’s hard to take profits when a trade is in your favor significantly because your natural inclination is to leave a trade open in your favor, because it feels good and forex trading looks good at that time. that point. While it is important to “let your winners run”… you have to pick and choose when you do this; you definitely shouldn’t be trying to get every winning trade to run. The market declines and flows, and most of the time it won’t make a really strong directional move without retracing at least around 50% of it.
So it makes much more sense as a short term swing trader (us) to make a solid 2 to 1 or 3 to 1 profit when the market gives you… rather than wait until the market retraces from your position and moves all the way back to your entry point or further, at which point you will probably exit emotional because you are angry because you let all those open profits go!
Especially for traders with smaller accounts, you should happily get the regular “bread and butter” bonus of 1 to 1 or 2 to 1… .there is nothing wrong with hitting the ‘single’ and That ‘double’ to build your trading account as your confidence. You must avoid the temptation of trying to achieve the ‘run home’ in every forex trade.
‘homerun’ transactions will come, and you will get better at detecting them and managing the transaction to turn into a ‘homerun’ over time and with experience. Just don’t get into the mindset that every trade will move 500 pips in your favor… most of the time the risk/reward being 1:2 or 1:3 is what you want to aim for.
Be patient to keep the deal
Having enough patience to get your trade going is the QUALITY for building your trading account and for long term forex trading success.
The trades that will make you the most money are the ones that you hold and don’t mess up, until they hit your profit target or you stop.
Remember, as I said above, if there is no logical/price action-based reason to exit a trade early, don’t do it, instead leave it open and let it run. its direction.
Set and Forget:
Many of you have probably read my trading post and forgot about a very simple trade management technique that, as the name implies, involves setting and forgetting your trades. friend. In other words, after you enter your trades, you will not interfere in them. However, there are exceptions to this rule, because markets are dynamic and constantly changing… we cannot be 100% rigid in our approach to trading.
It helps if you think of “put and forget” as a “default” trade management technique… not something you do all the time regardless of what the market is telling you. Set and forget basically just means you don’t do anything if there’s nothing sensible to do. It should be your basic trade management point… that is, once you enter a trade, you won’t move your stops or targets around unless the price action you see on the chart implies that you should do so. You should consider “put and forget” as a good metaphor for managing your trades with logic and objectivity instead of emotions like fear and greed.
So the mental concept of “put and forget” is important, but implementing it in practice sometimes still requires some supervision and intervention. You will need to monitor your trades every 4 to 8 hours on average and at that point you need to be as objective as possible when observing the market. If a trade is working as planned, do nothing. If the market has formed a major pin bar reversal against your position but you are still risking twice as much… then you should probably close that trade manually and take profits, because you there is a valid price action-based reason to do so.
However, let’s say you test your trade and it goes against you 20 or 30 pips according to normal market reaction, but there is no obvious/dramatic price action reversal from position your. You will not close the trade at that point, instead you will leave it open and just let the trade take place. Closing a trade just because it went against you a bit is not a good enough reason to close it… we need to give our “advantage” (trading strategy) to work if there is none. price action/logic based reason to close it out.
I will be frank with you, the way out is difficult. Exiting forex trades and managing them while they are active is the most difficult aspect of trading, because this aspect stimulates your emotions the most and is the catalyst for worthy trading mistakes. disappointed.
The best advice I can give you is to simply leave your forex trading alone most of the time. As we mentioned above, IF there is a valid and price action based reason to adjust your stop loss up or to exit the trade before your target is reached, then OK. However, you need to be very honest with yourself and make sure that you don’t exit trading based on emotions, because you will limit your profits if you do. We want to maximize our profits, not minimize them.