Know About Forex Exit Strategies

For making the system profitable and for getting the acceptable down market, money management rules and exit strategies in the trading psychology of a trader are very important.

It's unbelievable, but many people don't actually use forex exit strategies in their forex trading systems. Apart from the other parts of the system like entry rules , time frames which are being used, traded instruments the overall success depends on the exit strategies.

There are five different types of exit strategies which are used in the forex system.

• The first exit strategy is the initial stop. The main use of this exit strategy is to get out of the trade if the trade is out of the direction of the trade when compared to the earlier trade. This is not same as the trailing stop. It is more closer to the entry price than the trailing price. The initial stop is used until the trailing stop will come through it. The initial stop is used for reducing the losses.
• The another commonly used forex exit strategy is the break even stop. The main usage of this type of stop is to improve the profits and reduce the draw down in the market. If the trade contains both the initial and the trailing stops at a place, then the price or the currency will move in same direction of the trade and the trailing stop loss is moved to the break even stop loss. Break even point is the point where the price of the entry will be equal to the price of exit.
• When a certain profit target has been reached, most of the forex systems will exit either fully or partially. These take profit targets are used in the forex trading because of the volatility of the market. The volatility of the market makes the prices change and exiting of the market is done at the trailing stop itself. So, again these profit targets are used for improving the profits and reducing the losses. This is determined using the back testing or the forward testing of the trading system.
• The trailing stop will be up for a long trade and it will be down for the short trade. It is a stop which will move in the direction of the trade. The main purpose of this strategy is to protect the profits. The protection of the profits is done in two ways, firstly they allow sufficient room for breathing so that when there are minor fluctuations the price will not make you exit and thus it allows the profits.
• Major economic Announcement: Also the trade can be exited because of the these announcements. Because of the announcement, large and temporary increment of the volatility will may stop the trade at the trailing stop.

These are the different types of stops or strategies which are used in the Forex.