Know Your Entry And Exit
Know Your Entry And Exit
Why Important Are Your Entry And Exits When Forex Trading
What is entry point in forex?
DEFINITION of ‘Entry Point’ The price at which an investor buys an investment. The entry point is usually a component of a predetermined trading strategy for minimizing investment risk and removing the emotion from trading decisions. Recognizing a good entry point is the first step in achieving a successful trade.
What is the exit point in forex?
DEFINITION of ‘Exit Point’ The price at which an investor sells an investment. The exit point is usually decided as part of a premeditated trading strategy meant to mitigate investment risk and take the emotion out of trade decisions.
It is no secret that trading Foreign Exchange or currency trading is a risky business. It has been well documented that more than ninety percent of traders in the Foreign Exchange end up losing to the market due to bad decision making, terrible luck and most of all, simply lacking the knowledge and training needed in order to become a successful Foreign Exchange trader. Despite this fact, more and more people are putting their money into this financial market with hopes of making it big. There is nothing wrong with that but the problem is, they would have to learn what this market is all about and equip themselves with the proper tools to use in trading the forex.
One of the things that separates successful traders from the majority of market participants is that they have a detailed plan that guides them when to close trades. For them, this is essential. It is fair to say that when a lot of traders buy they have little idea of under what conditions they would consider selling. It would also be fair to say that a fair percentage of market participants routinely adopt a ‘buy and hold’ approach.
One popular tool used by some of the best Foreign Exchange traders is the “Pivot Point”.
Basically, the “Pivot Point” is a way for traders to identify situations wherein it signals an entry or an exit of a trade. In other words, it will show the trader when to enter into a particular trade and when to exit it so that he or she can attain the most amount of profit possible with that trade. It is a relatively easy to use tool which most, if not all professional traders’ use in their daily trades especially for short term trades. Plus, using this with other technical analysis tools would create a positive difference in the outcome of your trades and in the long run Business Management Articles, it can turn you into a forex trading success.
What You Should Know When Developing Your Forex Entry
1. Only trade in the strongest currency pairs in the direction of the trend.
Traders will find the best low risk entries with the highest profit potential when they trade with the trend. Look for higher swing highs and higher swing lows with price moving in a stair step pattern. Draw a trend line connecting the swing lows from the lower left hand side of the chart rising to the upper right hand side of the chart
2. When the trend is up look to buy at or near the trend line with help of Stochastics
The closer you can buy to the trend line, the lower risk there is in the trade. Buying at or near the trend line enables a trader to place a stop, a few pips below the swing low. Chasing the market and allowing price to move too many pips from support increases the amount at risk while decreasing the amount of pips. Use an oscillator like Stochastics to pinpoint entries. When Stochastics moves down below 20 and rises back above 20 provides a buy signal confirming price action rebounding from the trend line.
3. Book profits that are at least twice the amount that you have at risk on the trade
Since the market moves in waves and does not move in a straight line, traders will want to take profits at the top of the range. This means that in an uptrend, traders should take profit just above the previous price high of the trend. In addition, traders who are short or trading in a downtrend will look to take profits just below the previous price low.
4. When currency pairs reverse and/or move into a range, stand aside.
Currency pairs range about 80% of the time, so if the trend becomes unclear and you have to ask your trading buddies the direction of the trend, you may need to look at other pairs for trading opportunities. If you only trade one or two currencies and both of them are not trending, then you may need to change up your strategies and use range trading strategies.
What You Should Know When Developing Your Forex Exits
Here we will look at five principles for developing your Forex exits. These principles apply regardless of the specific exit technique that you decide to use and will assist in deciding on the appropriate exit technique.
1. Learn how to cut your losses quickly when trading Forex
Before you enter a position you should know where you are going to get out. This is critical to keeping your trading account intact when Forex trading. A small loss can very quickly turn into a large loss, therefore cutting losses is critical to improving your Forex exit signals. Develop the habit of always placing a stop loss order into the market when you enter a trade, to ensure that you control your losses on any trade.
2. Knowing how to hold your successful Forex trades
It takes time for a trade to play out and having the patience to allow the trade to develop is critical to the success of the trade when you are Forex trading. This does not mean that a trade that does not work out should be held until it becomes profitable. A stop loss is an efficient way of dealing with these trades, but for profit to grow it takes time to reach the appropriate Forex exit point.
3. Successul Forex traders know how to scale out of positions
Scaling out of a position is the reverse of scaling in. You exit part of a position on the first signs that the market may be turning around, then exit more once the turnaround is confirmed. A common Forex exit strategy employed is to exit 1/3 of a position when the trade has moved in your favour by the amount of your risk, 1/3 of the position to take a profit at twice your risk and the final 1/3 when the trend finally ends.
4. Forex traders know when and how to take profits
When a trend finally ends it is time to take profits. Unfortunately a flag does not go up to signal the trend is over when you are Forex trading. You are looking for clues that alert you to the end of a trend. Any Forex exit signal that you use when trading Forex should be based on set criteria. Once you are in the heat of a trade your perception of what is happening is altered. It is often linked to your profit and loss rather than to what the market is doing. Exit the trade when your signal occurs.
5. Re-entry is important
It can be frustrating to be exited from a trade too early when Forex trading, but exiting from a trade does not mean the opportunity no longer exists. If your Forex exit signal was too early you can re-enter a trade provided the reasons you got into the trade remain valid.
The Bottom Line
There is no best way to exit a profitable trade. For some trades, one method will work well, but will fair worse on other trades. The key is to decide on a method and stick to it, potentially using some of these methods in conjunction with one another. By coming up with a game plan you will be able to see what works and what doesn’t, so you can make slight adjustments if needed. All these methods can help you “let your profits run,” but will get you out if the price moves too much against you. You’ll never squeeze every penny out of a trade, but utilizing the exit strategies outlined here will help you capture the bulk of a move.