Saturday, November 25, 2017

The Importance of Forex Exit Strategy

July 18, 2010 by  
Filed under Fx Tips

Forex trading is a process, it all started from the point you enter a trade to the point you exit it. Whether you are going to be profitable in your trade depends entirely on the whole process. The problem with most traders is they are very concerned about their entry and they are always in search for ways to give them better entry.

In fact, the main reason why most traders are not profitable is because of their exit strategy. Having a good entry is only half the battle done, you need to have a well plan forex exit strategy in order to be able to keep the profit that you have generated instead of losing it back to the market as it retraces.

Therefore in this post, I will like to share with you several of my forex exit strategies. Your exit must always be realistic; there are traders who are greedy and always wanted to hit a high profit which is usually unattainable. On the other hand, there are another group of traders who often cut short their profit as they are afraid that the market might take it back from them.

Below are how I usually exit my position:

1) Major Support and Resistance: I often use major support and resistance such as pivot points or Fibonacci levels to exit my position. This is because the price often respects these levels and bounce off it. Most traders place their stop loss either above or below the major levels of support or resistance. Once the price moves to that position, it will usually trigger quite a number of stop losses and it causes the price to be repelled by it.

2) Divergence: If you are familiar with MACD divergence, you will know what I am going to talk about here. A positive divergence is a sign that the market is going to reverse from down to up or the market is going to retrace. If you are in a SHORT position and you see the formation of a positive divergence, it is about time you should exit your position.

However if you are in a LONG position and you see the formation of the negative divergence, you should also exit your position as this is a sign that the market is either going to retrace down or reverse to move down.

3) MACD Crossover: The MACD crossover is another sign of market reversal or retracement. When you see a bullish MACD crossover, you will usually see the market moving up and when you see a bearish MACD crossover, you will see the market moving down. Therefore I will also make use of this to exit my position.

The above are 3 ways I usually exit my position and you can give it a try if you currently do not have any forex exit strategy on hand. However as usual, you should try them out on demo account to see if it can fit into your trading style before you implement them on your live account.


One Response to “The Importance of Forex Exit Strategy”
  1. Dr Julius Ssemakula says:

    Hullo Mr Kelvin
    Thanks once again, i have a question about using the RSI in my personal trade plan. i Find it not reliable enough to use it as an exit strategy, comment about it. Because buyers or sellers alter it but the direction of a trade can be easily gotten with the MACD i believe.

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