Trading Times - When to Exit a Trade

Trading Times - When to Exit a Trade

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There is no perfect exit strategy. Whatever you do you will never exit a trade exactly at the point of the high on a buy or a low on a sell. However, you can use exit strategies that are quantified and permit you to exit into strength when you are holding a long position or on short positions cover into weakness.

In fact the essence of a trade exit rule or plan is to cut your losses and let your profits run. To cut your losses short use a well thought out protective stop to protect your currency trading capital. Even before you make a trade you should have worked out where your defensive stop will be. This is designed to be the minimal loss you are willing to take. You can set a stop in many different ways. 

For example:

You can set a dollar amount on every trade at which you want the trade to stop.
Percentage retracement - perhaps 10% from entry
Moving Averages - the reverse of the moving average entry
Channel breakouts – the reverse of the channel breakout entry
Stops based on areas of support and resistance
Time - If after a certain length of time the position hasn’t made a profit then exit.

An effective technique is also needed to let a profit run.

An efficient exit procedure is also necessary to allow a winning currency trading to create the most profit achievable and give back the smallest amount of it.

Trailing Stop:

Normally a trailing stop is in used to realize this purpose. A trailing stop follows a price to secure profits as the trade shifts in the traders favor; a trailing stop should never be moved the wrong way. Trailing stops can be calculated exactly the same way as you calculate a stop loss.

LIMIT Order:

A limit order is an order which protects your profits. It has a pre-determined exit/profit objective and is placed accordingly. This strategy obviously breaks the rule of letting your profits run and usually cuts short the best trades and thereby reduces your profit.

Source: www.etoro.com