Forex Trading Strategy Know Exit Before You Entry

Posted by You Forex in Forex Tutorial Step By Step on March 1, 2010

Most traders never plan or even discuss their Forex exit strategy. If you look on the Internet, it’s full of Forex entry signals and set-ups. When I first started trading, my only concern was how to enter the market. I though if I could just get a good trade set-up and get in at the right time the profits would just fall in my lap.

Little did I know that the Forex exit strategy is just as important, maybe even more. Although, traders will argue which is more important, you need to understand that they both are. Just make sure they are planned and part of your trade plan. It’s true that a successful trade entry can greatly improve your trading win-rate percentage and overall profit. Thus, the reason why most traders pay more attention to the entry and not their Forex exit strategy.

Never Over Look Your Forex Exit Strategy

Here are some important elements to your exits strategies that you must consider. Hopefully, they will help you design a better exit signal and give you a better understanding to the importance to your overall plan.

No.1 – Know What Your Forex Exit Strategy Is Going To Be

Before You Enter The Trade.

As I mentioned before, make the exit part of your overall trade plan. Never enter a trade without planning your strategy for your exit profit target or your stop loss.

No.2 – Consider Multiple Forex Exit Strategies.

You can design you trade plan to incorporate multiple exit strategies to try to gain as much profit as possible. Especially, if the market is trending nicely in the same direction. This strategy is when you would take profit at pre-designed levels as the trade is working I your direction. For example, you would exit 1/3 of your position at 20 pips profit. Another 1/3 at 40 pips profit and the remaining 1/3 at 60 pips profit.

No.3 – Always Initiate A Stop Loss As Part Of Your Exit Strategy.

A stop loss can also be your exit strategy if your trade does not go in your direction. It’s there to protect your trading account and will allow you to trade another day. You can also incorporate a “trailing stop” as part of your Forex exit strategy. For example, if the trade was in profit 20 pips, you could move up your stop loss to break-even. Which is the price at which you entered the trade. Once the trade was in profit another 20 pips you could move the stop loss up 20 more pips from your original entry price. This would guarantee that if the price came back the other way against your position and hit your stop loss, you would still have a profit of 20 pips. You can keep doing this for as long as you want if the trend is really strong.

No.4 – Stick To Your Forex Exit Strategy As Per Your Trading Plan

One of the biggest obstacles a trader faces is sticking to their pre defined trading plan. There were so many times when I started to trade that I didn’t stick to my plan. Especially when the trade was going in my favor. I soon realized how fast the market can be and quickly turned against me. I knew I should have put in my profit targets and should have exited the market with a profit. But my lack of discipline and experience took the better of me. What could have been a winner, turned into a looser because I didn’t put a stop-loss either.

This was a huge realization, which finally took my trading profits to the next level. I learned to trust my trade plan and follow it with discipline.

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Create A Successful Forex Strategies and Trading Plan

Posted by You Forex in Forex Tutorial Step By Step on February 22, 2010

Apart from perhaps your profit and loss account, the most important document you should have is your Trading Plan. It’s mentioned in all the good trading books and most traders don’t bother, because they think it either doesn’t apply to them, or they don’t understand why they need one!

Let’s look at the second of these things a little more closely. The reason you need a Trading Plan is to have some sort of rule sheet to work off. If you don’t have rules, you won’t be a good trader – it’s as simple as that.

When trading, it is so human and easy to bend the rules a little and say things like ‘I’ll get out when the price hits 1.593’ and then a few minutes later you’ve changed it to ‘1.594’. If there is no gauge as to what you need to do, rules get bent or broken and money gets lost, so with regard to trading, it’s the money that ‘counts!’

A Trading Plan is flexible and geared to what you want in trading. It starts off being only an approximation to your trading style and as you ‘refine’ it, it becomes more accurate and definable. Just as a business (Which is what you trading is) has to forecast profits in years ahead without knowing any data, you will need to define some Trading Plan entries in the same way and then refine them when you have more information.

The first thing in a FOREX Trading Plan may be: Why do I want to be a trader? – The so called ‘Mission Statement’ Be relaxed an informal about this, e.g. ‘because I want to be more in control of my destiny by doing something I enjoy which has limitless financial possibilities, rather than being ‘salaried’ and stuck in ‘The Rat Race’’.

Next, state your trading style and why you have chosen this: ‘I am a Day Trader to Swing Trader (Most trades lasting a few hours to a few days) and occasional Position Trades for long term opportunities.’

You need to state your strengths and weaknesses, not necessarily trading based ones.

Then your objectives, in the form of financial targets or goals: I want to make 30 pips per day, for 200 trading days per year, is good. It is however, better to state days in the future when you will achieve your targets: By 1st January 2011 I will have made $60,000 is also vague and a better way of expressing it would be: I will make an average of 30 pips per day for 200 trading days per year = 6000 pips per year at $10 per pip = $60,000.

Expressing targets in the form of goals is even better:

First goal, to be able to live off earnings from trading = $500+ per month consistently for 5 consecutive months out of 6.

Second goal, to increase to next level equating to a modest ‘salary’ = $2000+ per month consistently for 5 consecutive months out of 6.

Third goal is to achieve $10000+ per month continuously.

You then need to define what markets you will trade and at what times of day you will trade them. It is also good to say why you are trading these particular markets for instance.

A little comment on what trading platform and software you use and also which broker would make you plan more complete.

Next, your trading routine: List your pre-market activities (This may be research into news, homework on charts, looking for good entry points etc.), activities during market open (How you go into a trade, how you manage it and how you will get out!) and post market activities, such as logging any trades completed.

It is important to state your trading risk levels (‘I will risk only 1% of my account on any trade’) and where and how you will enter stop losses. Also state your trading frequency – The maximum amount of trades you will place in any time period.

There are many Trading Plan ‘templates’ available on the Web. Try and find one that suits you. Then condense your plan onto one or two pages of A4 and print it out, so you can refer to it. If you are new to this, you will realise that you are constantly changing and ‘tweaking’ your plan, but as time passes, the corrections will be few and far between!

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