Forex traders oftentimes face difficulties finding the perfect exit. They become frustrated after facing huge losing form the trades which was initially a profitable trade.
Due to the miss calculation of the stop loss and take profit, many traders even blow up the trading account. To become a professional trader in the Forex market, you have to push things to the next level to make money.
Unless you are well aware of the fact, losing trades are inevitable you are not going to succeed in trading. After reading this article, you will know how to find the perfect exit in any trade.
Concept of exit point
New traders in the Forex market don’t understand the concept of an exit point in trading. Setting up the stop loss and take profit is knowing as finding the exit.
Your trade might hit the stop loss but you must assess the stops are placed at the correct place. Unless you do so, you are not going to end up making profitable trades.
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Most of the time the stops are placed based on the indicators. But indicators should not work as the medium to calculate the stops.
On the contrary, the take profits are set based on the concept of the Bollinger band indicator. Without using such a concept at trading, you have started using the knowledge of support and resistance level.
Support and resistance level
Support and resistance levels are the most crucial thing in the Forex trading industry. Without having fair knowledge of the key support and resistance level, you will struggle to protect your trading capital.
Once you learn to find the key support and resistance level, placing the stops and take profit will be easy. However, some new Forex traders often use the lower period to find the potential demand and supply zone. But by doing so they are finding the minor trading zone. And determining the exit points based on the minor trading zone is a very big mistake.
The risk to reward ratio
Setting up the risk-reward ratio is more like creating insurance for the losing trades. If you risk $1, you have to secure a $2 profit from a certain trade. But things become messy and the retail traders often trade with negative risk-reward ratio.
The experts always recommend using a minimum of 1:4 risk to reward ratio as it helps to recover the losing trade. Though the starting part of your trading career might be very challenging and you might not find such good trades but this is the only effective way to survive in the Forex market.
And once you start to determine the exit points based on the risk to reward ratio, you won’t have any trouble with the exit point.
You might have to close a trade due to some high impact news. Let’s say, you have long trade in USDCAD pair. During the FOMC meeting minute, the FED lowered their interest rate. Lowering the interest rate signifies weak economic performance. Weakness in the U.S economy will result in a sharp drop in the USDCAD pair.
So, closing the long trades immediately will be a mature act. But improvising the trades is only for the experts. The novice and intermediate traders should never improvise any trade as it can increase the risk factors to a great extent.
Before you learn to analyze the fundamental data, make sure you switch to the demo account as it will give you the perfect learning environment.
Practice more so that you can understand the price correlation with the major news. You can also attend the Forex webinars since it is a great way to learn from the expert traders. Always push yourself hard so that you can gain more knowledge.
Once you have the right sets of skills, finding the exit point or making a consistent profit will be easier.