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This article is about one of the most important aspects of trading in general: The managing of orders and positions. That means choosing the entry points, making right decisions about exit points, stop-losses and take-profits of the trader.
While the right time to enter a position is often not a problem for traders the most problem is to find the right exit point for that position. It is not only important to cut the risk on the potential losses with stop-loss orders but to limit the greediness and take profit when we can take it and make it as high as we can. There exist many known guidelines and ways to enter a right position at a right time e.g. major economic news releases, global world events, technical indicators combinations etc. Margin trading makes it impossible to wait too long with an open trade. Every open position in a certain way limits your ability to trade. To choose good exit points for positions could be an easy task if only the Forex market is not so volatile. Exit orders for every position should be updated constantly from time to time and when the new market data - technical and fundamental - appear. E.g. you take a short position on EUR/USD at 1.2563. When you are taking this position the support/resistance level is 1.2500/1.2620. You set your stop-loss order to 1.2625 and your take-profit order to 1.2505. So now this trade can be marked as an intraday or 2-3 days term position. This means that you must close it before its "term" is over or it will become a very unpredictable position because the market will change from what it was at the time you have entered this trade. After the trade is taken and initial exit orders are set you have to follow the market events and technical indicators to adjust your exit orders. The most important rule is to tighten the loss/profit limit when time goes by. Usually if we take a middle term position - from 2-4 days - we try to lower the stop and target order by 10-25 pips every day. We also monitor global events and trying to lower our stop-losses when very important news can hurt our position. If the profit is already quite high we try to move our stop-loss the entry point and making a sure-win trade. The main task here is to find a balance point between greed and caution. But as the position gets older the profit should be more limited and losses cut. Also you should always have in mind that if the market began to act unexpectedly you need to be even more cautious with an exit order even if the position is still in profit. We hope this article will be a help about an important aspect of trading like the exit orders and this will only improve your trading results. |
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