In the forex faq today, we have a question from one of our fellow traders regarding the right time to exit a trading position.
Below is the question:
Usually I enter a trade at right time. But my problem is that I close it prematurely . I need some patience. But how to detect the false reversal signals?
What you are encountering is not uncommon among new traders. Due to your fear of the market coming back to take away the profit from you, you usually exit your position prematurely.
From your question, it seems that you are using some techniques to detect sign of reversal but it is not effective. I cant comment on your exit technique as I do not know exactly what you use.
However I have some personal suggestion to you regarding exit techniques.
1) Shifting your Stop Loss to Breakeven – This is one technique that I often use in all my strategies. If you are a student of my break the bands strategy or forex course, you will know that I use this technique extensively.
The whole purpose of shifting stop loss to breakeven is to protect our trading account. For me, I will shift the stop loss to breakeven when the market has moved around 25 to 30 pips in my favour. Once I do that, I will log off from my trading account as the worst scenario for that trade is breakeven for me. If the price continues to move, I will make a profit from that trade.
It is very important as a trader to always protect your account. It is only with a trading account that you can live to trade another day.
2) Use a Fix Risk Reward Technique – For me, I love to use this technique to trade. For example, if I always enter a stop loss of 1:2 for my trade, I will make sure that I stick to it.
For example, if I enter a trade with a stop loss of 25 pips, I will automatically set my target profit as 50 pips. In this way, I do not care about the reversal signal at all. Once the price has moved to 25 or 30 pips in my favor, I will shift my stop loss to breakeven and that trade is considered a good trade for me.
3) Use a Major Support & Resistance For Exit – If you find your reversal signal not so effective, you can consider using major support and resistance levels as exit points.
You will find that price usually get repelled by these levels and therefore it is a great place to exit your position.
I hope that I have answered your question. For those of you who has something to share regarding this topic, please give your comment below as it will be very valuable for everyone here in this community.