Identifying exit price levels in the forex market is crucial as it enables traders to limit their losses and capture profits before the trade opportunity fades. There are several questions related to risk, profits, future projections and more that traders must ask themselves before they finally place the sell order and exit the market.
In our article, we will go through ten such questions that a trader should consider when planning trade exits.
1. How long can you afford to hold the trade?
There does not have to be a fixed timeline to limit a trade’s duration. However, as part of your trading plan, you can set an expectation about how long you plan to keep a trade open at max. If you are a long-term trader, you can set a time limit of holding a trade for several months or years. If you are a short-term trader, you may only want to set a time limit to hold your trade for a few days or weeks.
Setting a trade time limit helps you track the market condition and place exit orders accordingly. If your trade approaches the time limit set and the market trend is in your favour, you can close the trade before the timeline expires.
2. What is your risk appetite?
Whenever you enter a trade, you should fix the maximum risk you can afford. Risk management is vital as it helps you minimize your losses. Before you decide to exit a trade, ask yourself what your risk appetite is and if the trade fits the same.
If the money you are making or losing in the trade is close to your risk appetite, it signals the right time to exit as any risk beyond this point is not tolerable. However, if your trade value is nowhere near to your set risk tolerance, it signals traders to remain patient in the market and not place sell orders just yet.
3. What is the target value you wish to achieve?
If the profit targets have been completed, it signals traders that they can move ahead with closing the trade.
However, if the traders are far behind their profit targets, it sends a signal to traders that their trades have not been able to perform as per their expectations just yet, and it is not the right time to exit.
4. What events can contradict your trade?
When planning to exit a trade, always ask yourself if there is a possibility of an unforeseen event occurring and creating volatility in the market. Such events can occur after economic reports, war outbreaks, official statements, pandemics, etc. If you feel there is a possibility of an adverse event occurring in the market in the short term, you can plan to exit the trade. However, if the markets seem stable with no such extreme event expectation in the near future, you can plan to continue staying in the trade.
5. What is your post-exit trade plan?
With a post-exit trade plan, you can explore your existing possibilities after placing the sell order. You can either open a trade in other securities, wait for the markets to change their trend, or buy back the same security after some time.
Having a post-exit trading plan will help you calculate your exit position rationally. If you are unsure about what to do next, you can postpone your exit plan for some time and figure out what you plan to do next. Once decided, you can move ahead with exiting the trade.
6. How is the forex market performing compared to the other markets?
Sometimes theforex market is booming while the other financial markets are not, and sometimes the opposite happens. When planning to exit a trade, you should always compare how the forex market is performing against the other financial markets like the stock market, commodities market, derivatives market, and bond markets.
If the forex market is performing better than the other markets, you can consider not exiting the trade just yet. If the forex market is not performing as well as the other markets, you can consider exiting the trade as per your plan.
7. What does the market projection look like?
When planning to exit the trade, always analyze the current market to make future market projections. If you have a long position in the market and the future projections suggest that there will be a bullish trend, it is recommended to push your exit plan for some time in order to benefit from the rising prices.
If the market projections indicate a bearish trend, you can consider exiting a trade to limit the losses. However, if you have a short position in the market, consider exiting the trade in case of a bullish projection and staying in the trade in case of a bearish forecast.
8. Does the exit plan align with your trading strategy?
A trading strategy is what you create before entering the forex market. It consists of your trading objectives, goals, strategies, timelines, profit expectations, risk appetite and how you plan to manage your positions.
If your exit plan aligns with your trading strategy, that is, your profit targets have been achieved, or risk appetite has been surpassed, you can exit the trade. However, if your exit plan does not align with your trading plan, which means, it does not match your trading goal in any sense, it signals you to postpone your exit plans for some time.
Plan your exit trade strategies after asking yourself the required questions
Asking yourself these much-required questions before you finally exit a trade is critical if you plan to be an intelligent trader. Join Blueberry Markets for a seamless trading experience, tight spreads, and more.
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Disclaimer:
- All material published on our website is intended for informational purposes only and should not be considered personal advice or recommendation. As margin FX/CFDs are highly leveraged products, your gains and losses are magnified, and you could lose substantially more than your initial deposit. Investing in margin FX/CFDs does not give you any entitlements or rights to the underlying assets (e.g. the right to receive dividend payments). CFDs carry a high risk of investment loss.
