In forex trading, timing matters greatly. As a forex trader, there comes a time when you need to exit the forex trading and pick your profits or close the trade to avoid further losses. When you enter the position too late, you will end up missing the price movements you could use to maximize your profits.
Timing is also essential when you want to exit trading. When you do it early, you will miss out on additional pricing that could maximize your profits, while when you hold too long, the price can reverse, crashing down your earnings. It is crucial to be aware of the time, close the trade when appropriate, and enjoy fattened profits for your capital. Here are some signs you need to close your trade.
Failed Price Swings
Markets do not trend every time. In most cases, they only do about 15 to 20 percent of their trading time, depending on the commodity. Most are caught in trading ranges most of the time. Having string ranges in both ends helps to consolidate price changes, lower volatility levels, and helps to maximize profit-taking. All these lead to a healthy trend development.
A trading range will become top or bottom when it exits a range in the opposite direction in a trading swing. In most cases, price ranges will give warning signs of a trend range when it breaks down as expected but reverse quickly to its range boundaries.
These failed breakouts algorithms usually target short-sellers and uptrend investors. When there is a failed breakdown or breakout stage, it is time to exit a trade, picking your profits or losses, and wait until the price exceeds the low of breakdown or the highs of breakout. You can make a re-entry since the failure is no longer there, and the underlying trend is resuming.
Have exit indicators
It is crucial to use exit indicators to help you know the right time to exit the trade. Some of these forex trade indicators include:
- Stop-Limits: This strategy enables you to prevent losses when the price movement does not go your way. It is also a tool that will protect you from impulse decisions that will cost you your trade.
- Average True range: These are indicators that will limit or stop some market behaviors. It helps you have stops and limits that will enable you to exit the market without further losing your capital.
- Relative strength: This strategy helps determine whether the currencies you have paired have oversold or got overbought in the stock market. It enables you to decide whether to continue or close your trade.
- Moving average stop: This is a simple indicator used by experts and beginners. It helps to indicate a sell situation while recommending whether to stay or close the trade.
- Scaling an Exit: This strategy is used with other indicators and signals when a trade has moved into a profit zone, where traders can sell and exit the trade.
It is vital to track the average daily volumes in at least 50 to 60 sessions and mark the trading days with three times the average volumes or higher. Higher volumes are good when they occur in the direction of the volume and are bad when they follow the opposite direction. Such happens when the swings tend to break a notable resistance or support level. You have to check on this and close your trade where possible.
Uptrends in trading sessions will need consistent buying, while the downtrends will require consistent selling pressure. High volumes in opposing directions undermine accumulation-distribution patterns, which signal a profit-taking session in value buying in a downward trend.
It is also essential to watch the climax days that stop trends if you want to close your trade. These sessions grow at least three to five times the average daily trading volume on wide range price bars, extending to new lows on a downward trend and new highs on an upward trend.
Moving Average Crosses and Trend Changes
A 20-day short term, a 50-day intermediate, and a 200-day long term moving averages will give you an analysis of whether to close your trade or not by looking at these moving average lines. In long positions, a danger arises when the 20-day short-term average descends from the long-term average. In short sales, the danger arises when the short-term average ascends on the long-term average.
Besides this, price action also affects how and when you can exit your trade. When the intermediate moving average price changes from higher to the sides in long positions and stays lower on short sales, that will be a red flag. It prompts you to close your trade. It is not recommended to stick around and wait for long-term averages to change. The market can flatten or remain dead for the longest time, thus limiting your opportunity costs.
It is not easy to close a trade, especially when you have high expectations over it. However, there comes a time when there is no other option than do the necessary. When you use the above indicators and strategies, you will know the red flags which help you exit the market with profits or fewer losses.