There are certain points that you have to know about when you trade on the forex market. Two of the most important points are the entry and exit forex signals you need. A lot of new traders focus most of their attention on the entry forex signals, but the exit forex signals are just as important. There is no point in getting onto the market if you are not going to know when you should exit the market.
How to Develop Your Exit Forex Signals
When you develop your trading system you have to consider your exit signals. This is a very important part of your trading system because without it you could suffer serious losses because your trades will always be open. You need to ask yourself three things when you are developing your exit strategy.
How Long is Your Trade Going to Last?
The first question that you should be asking is how long you are going to be holding the trade for. This will relate to the trading strategy you are using and the type of trader you are. Short-term traders will not hold trades for long, but fundamental and swing traders will hold the position for a while. If you are a long-term trader you should consider certain points:
- Allowing for volatility in the range market. When you trade long term you have to be aware of the fact that your trade could turn against you for a time before the market swings in the right direction.
- What profit levels are you looking for in the trade. The exit points should relate to the amount of profit you are going to get.
- Should you have an exit strategy that is based in fundamentals? If you are trading fundamentally then you may want to hold a position until the next fundamental release. Your stop order should reflect this.
Where Have You Set Your Risk Levels?
The second question you should be asking is what your risk levels are. The amount of risk you are willing to take will determine where you can place your stop orders. You should never risk more than 2% of your trading account on a single trade. Of course, you can risk less if you want, but the rewards are thought to be too low with less risk. You stop loss order should be at a point where you will only lose 2% of your account and no more.
How Much Do You Want to Make?
Exit strategies are not only about exiting the market with a loss. You should also consider the take profit orders that you are going to place as part of your exit strategy. To determine these points you need to think about the profit that you want from the trade. This could be a percentage amount or a set amount of pips.
When you look at take profit amounts you also need to consider when the market will turn. If you are trend trading you have to ensure that your take profit point is below the turning point of the trend. This is actually very hard to predict as you have no way of really knowing beforehand what the market will do.
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