Sunday, September 24, 2017

2 Effective Forex Exit Strategy To Use

July 25, 2011 by  
Filed under Forex FAQ & Latest Post

In today forex faq, I have an interesting and important question to go through with you guys.

Below is the question:

What method can you suggest to trigger Target Profit on 5 and/or 15 min charts? I usually take a 50% partial profit at 15/20 pips but find, particularly where price reverses to my entry (stopping me out for zero), that it dilutes my profit and risk/reward to the point where I’m just breaking even on the day.

Should I simply stay in position longer and accept that 20 pips profit might simply sometimes vanish but 40+, for example, in a smaller number of trades will compensate?

The above is the question that is sent to me from one of our fellow traders. I will try to rewrite the question again as it might be quite confusing for some of you.

I think that the question is trying to tell me that he usually exit his position at 50% of his target profit. From the question, I believe that he has a target profit of 40 pips and usually exit at 20 pips as he has experienced where the price moves back to stop him out totally at the breakeven point.

He is asking whether he should let the profit runs to target profit and in the case if it reverses, he will get stopped out at break even.

I bet that some of you are also experiencing this forex exit problem as well and therefore I will like to share with you my personal forex exit strategy here.

Method 1: Always place 2 separate lots so that you can exit 1 of them at your 50% target profit and then shift the stop loss of the other lot to breakeven in case the price reverses to stop you out.

This will ensure that you have some profit lock in irregardless of the movement of the market after that. However this will lower your risk reward ratio by a bit.

Method 2: When the price moves up to 50% of your target profit, you will move the stop loss of your trades to breakeven. This will make sure that you have your capital protected in the case when the price reverses. However this will allow the trade to run to full profit if it manages to hit your target profit.

For me, if there is a strong support or resistance ahead of my target profit, I will use Method 1. If there is no strong support or resistance ahead, I will go for Method 2.

I hope that this will shed some light about the forex exit strategy you should use as your exit is just as important as your entry. Do spend some time to think over it and practice it on your demo to see which method is better for your strategy.

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