Top 3 exit strategies to exit your trades wisely
You must have exit strategies in order to exit your trades at the right point and right time. As we all know, money is always made at the exit, not at the entries; hence exit strategies are important and must be followed in order to exit the trades sensibly.
There are a couple of things to consider if you want to exit your positions wisely. There should always be a logical and established exit strategy in place. Before we head any further, I would like to ask you all how many times have you entered a trade, it moved in your favour up to a certain point, you felt good about the trade, and then it retraced back within a matter of seconds, and it turned your profit into reds? After this you panicked and exited that trade at a loss or breakeven, and after your exit, that trade went in your direction and hit the target.
So to avoid such confusions, I will share my top 3 exit strategies (Opinions can always vary):
- Exit strategies based on trailing stoploss.
This is the most fundamental yet crucial trading guideline. Many beginners attempt to increase their losses by adjusting their stoploss when a trade goes against them. This is a huge error.
Think carefully about your stoploss and lot size before making an entry. Once you do, change your stoploss in the direction of your trade, never the opposite; this is called trailing the stoploss in the right direction. Even though you might assume that the trade will reverse and that I should slightly move my stoploss against the trade, don't even bother to consider it. This is one of the most common mistakes many traders commit.
- Exit strategies based on risk-to-reward ratios.
This is one of the most sensible exit strategies in trading. Let's say, for example, you make an entry with risk reward ratio of 1:3; once you take the trade and it moves in your favour by some pips and let's say you achieve 1:1 risk reward then you can trail your stoploss to breakeven so that you will not lose money on that particular trade. Similarly when you hit 1:2 risk reward ratio, you can trail your stoploss further and secure 1/3rd of profit.
- Exit strategies based on Moving Averages.
It is always important to secure profits when markets are in your favour, and to do that; the moving average is the best indicator.
Many traders use moving averages in order to trail their stoploss. There is no specific movinng average to trail your stoploss. Different traders use different moving averages or some traders use 9EMA, some use 10EMA and so on.
It depends upon your comfort level and your backtesting, which moving average you can use as a trailing stoploss. Once the price closes below that specified moving average, you can close your trade and secure profits. This is how moving average exit strategies work.
So these are some of the most effective exit strategies you can use in your trading. If you want to know more about it, please drop me a comment.
