Exit Strategies in Trading – When To Exit A Trade?

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Although these days you can come across articles that discuss trading, mostly concentrating on aspects regarding buying and selling short or how to handle the psychological aspects of it.

However, what most of them do not tell you is how you can exit one.

And that's unfortunate since that's probably even more important (or as equally) as the entry. Imagine how great it is to be capable of coming out of a losing trade without feeling bad and simply carrying on as if nothing happened.

I can imagine how amazing that would make you feel. That’s precisely the main reason why I decided to cover this topic. I’m about to create a detailed guide that will tell you everything there is to know.

Why do you need one in the first place?

An exit strategy is crucial if you want to develop a solid trading system that will only benefit you and this refers to trading indices, forex, and cryptocurrency.

Exit Strategies in Trading – When To Exit A Trade

Nowadays, you can come across a variety of different exit strategies, some of them are pretty simple, while others are a bit complex.

The ones that are complex are because you need several exits so you can properly trade what’s in front of you and accomplish your objectives.

You need a good exit trading strategy in place to ensure that nothing negatively influences the trading plan you’ve built.

Bear in mind that if you do not stick to your plan and become emotionally overwhelmed, you won’t be able to achieve your goals.

The main goal of an exit strategy is to complement your entire trading strategy and to be sure you focus on your trade management skills, and risk management techniques so you can become a successful trader

Also, developing these skills is essential if you want to become a funded trader.

How & when to enter a trade?

Entering one is definitely not as complicated as you may think at first glance. When it comes to this, you have two sorts of trades at your disposal. You can purchase an asset and pray that its price is going to rise.

Or, on the other hand, you can short it while hoping that the price is going to drop. A step that must be taken during this process is to conduct research and then pick the volume of the asset.

So what do I mean by that? I simply allude to the number of assets that you want to obtain or short. And then, you are supposed to utilize the buy and sell options that were offered by the broker so you can easily enter the trade.

As far as the best timing to enter the trade is concerned, that’s something that a lot of traders want to know, especially the newbies.

According to my findings, you should enter a trade only when you’ve executed these things below:

  • Properly researched the asset by employing price action, and fundamental, and technical strategies.
  • When the price is good. Avoid purchasing high and shorting low.
  • When you’re familiar with all the factors that impact the price of the asset.
  • When you’re mentally ready for this journey.

What are the best exit strategies?

Trailing stop (price or indicator) – A trailing stop trails the present market price. There are various trailing stops that can be used by traders.

What are the best exit strategies

But the point is, these stops can either be based on a technical indicator (like a moving average) or on a set price. If you’re a fan of moving averages, then you can give displaced moving averages a try. 

Modern traders usually opt for price action whenever they want to exit, however, there's still something special about the displaced moving average.

From what I know is that the trailing stop is one of the most effective ways to manage a lucrative trade. 

How come? Well, that's because, in the same way, that a stop safeguards the initial positions at the risk parameters a trader gladly accepts, a trailing stop is capable of turning those risk parameters into real-time position protection. 

And with a trailing stop, you won't be experiencing any unpleasant surprises since it does exactly what it says on the tin

It is a stop loss that pulls the market, moving higher on a long position or lower on a shorter position as the market price of a particular asset that's being traded moves.

Let’s discuss the traditional stop/limit strategy

Certainly, one of the surefire ways to stay emotionally stable (as much as possible) is by setting targets (limits) and stopping the moment you're entering the trade. This is much better than simply entering it without a "stop loss".

Now, before you take any further steps, it would be advisable to first assess the amount of risk you are willing to take and then set a stop precisely at that level while putting a target at least several pips away. 

If you are wrong, trades are going to be closed in an instant at a relatively desirable level of risk. On the flip side, if you are right and the price hits the target, the trade will also be immediately closed.

In other words, both of these outcomes give traders an exit. Traders who decide to go long would normally look for the price to bounce off support in conjunction with clear buy signals utilizing indicators.

Now, since the price has temporarily broken lower than support, traders would typically try to put a stop slightly beneath the level of support.

Furthermore, the limit can be put at the level of resistance if the price has reached this level a couple of times. For shorter positions, this is going to be reversed and stops can be put close to the resistance with limits put at support.

What about fast market trailing stop?

This one is without a doubt perfect in a runaway market. You could short the Eurodollar (or anything else) and it’s going to spike down in your favor for three successive periods.

However, as soon as the move stops, Bollinger band traders and reversal traders jump in and then load up in a different direction.

At times, the market manages to defy gravity and launches into a fast move, only to crash again. If something like this ever occurs, then you need to focus on developing a plan that’s going to strain the exit as the market moves quickly in your favor.

If by any chance you experience something that’s similar to this, all you have to do is to adapt your trailing stop to prevent returning what you’ve gained.

You may even potentially go to a lower timeframe or you can only give back up to two times your risk.

Volatility based approach

This strategy utilizes the Average True Range or also known as ATR which is made to gauge market volatility.

Volatility based approach

By analyzing the average range between the low and high for the last fourteen candles, it is trying to show you how strange the market is behaving.

This type of information the trader can employ to determine stops and limits for every single trade.

The bigger the ATR is on a certain pair, the broader the stop is supposed to be. And all of this completely makes sense, due to the fact that a tight stop on a fickle pair could easily get stopped out too soon.

On the other hand, setting stops that might be too wide for a pair that isn’t too volatile practically takes on more risk than it’s required.

What’s generally great about the ATR indicator is the fact that it’s universal, meaning that any trader can adjust it to any time frame

All you have to do is to set the stop just slightly beyond 100% of ATR and determine the limit at least the same range away from the entry point.

Time stop

System traders have a tendency to test the omnipotence of a variety of different entry techniques by turning to a time stop.

In terms of live trading, there are a plethora of traders who employ a time stop that can close their position in case there’s been integration in a tight range over a certain amount of sessions.

Furthermore, you can always exit after a certain amount of time in a trade, or you can do this on Friday before the market is closed.

Cross rates-savvy traders have a tendency to supervise cross rates in order to figure out in what direction the currency pairs they are trading are moving.

If you notice that the price action on the cross rates is showing any signs of weakness, then it would be advisable to immediately exit the trade.

Profit target

So what do we know about this one? It can be defined as an order you put so you can close your position once it strikes a particular target price.

Profit Target

These can generally be utilized in sideways markets, however, some believe that they work fine in trends as well.

Final words

In trading, there are no rules that can be applied at any given moment due to the fact that sometimes they will work, and at times, they won't

That's why I mentioned several exit strategies so you can have multiple options when it's time to exit one.

About the author 

Peter Keszegh

Most people write this part in the third person but I won't. You're at the right place if you want to start or grow your online business. When I'm not busy scaling up my own or other people' businesses, you'll find me trying out new things and discovering new places. Connect with me on Facebook, just let me know how I can help.

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