This article looks at the forex signals that you can use with exit strategies.
When you are trading on the forex market it is just as important to have a good exit strategy as it is to have a good entry strategy. There are certain forex signals that you should look for in your exit strategy. When you see these forex signals you need place your exit positions and stick to them. The exit forex signals that you use need to be right for your strategy and your trading style.
Using the Right Forex Signals
It is important that you know what forex signals to look for when you are trading. Having a good exit strategy is very important if you want to make a profit. When you are dealing with a successful trade you may be tempted to let it run for greater profits. You may consider taking the profits when you feel you have made enough. Both of these scenarios are actually wrong as they are more emotional than technical.
There is no way of knowing whether or not your profits will continue to increase. It is possible that the market will swing and you start to lose the profits you have made. Successful traders value a locked profit more than a potential profit. This is one of the reasons why many traders tend to cash in on their profits too soon.
The Exit Strategies You Should Consider
There are three exit strategies that successful traders use, but there are many others which may suit your trading style more:
- Using a 2 period RSI is similar to using moving averages. In long trades when the RSI crosses 70 you should exit the trade. In short trades when the 30 line is crossed you should exit a trade. Using a short period RSI can cause you to leave the trade too soon limiting the profits you make compared to the long period RSI. However, the risks are lower with short periods and the information is more accurate.
- The second strategy that you can use is to find technical forex signals that indicate an exit. Traders who are comfortable with moving averages generally use the 5 period and 2 period averages to pinpoint these exits. Using larger time frames is not recommended as the results you are given will not be as accurate. Of course, the long time frame does allow for greater profits making the choice more personal preference. When using analysis to determine exits you need to stick to the point you have chosen. Moving the point after the trade has been placed could lead to losses as this is an emotionally driven decision.
- The last exit strategy that you should look at is the use of trailing stops. Trailing stops are a useful tool as they move your stop point when your trade reaches profit. It is important that you set these correctly otherwise you could suffer greater losses. If the market turns south you should ensure the trailing stop is set to a certain percentage so you do not lose too much. It is best that you check the trailing stop once your trade hits profit and adjust it accordingly. The stop point should never fall below the profit line.