Another way of looking at exit strategies in Forex trading

Another way of looking at exit strategies, or stops, is by classifying them according to what kind of trade you're making or what stage you are at in the trade. Under this classification the main kinds of stop are initial stops, break-even stops, take profit stops or trailing stops.

1. Let's look at trailing stops first. A trailing stop is a stop that moves in the direction of the trade - that is, up for a long or buying trade and down for a short or selling trade. By placing a trailing stop you are aiming to allow room to move and thus allow the profits to run, but ensure you can exit the trade when it does turn against you.


2. An initial stop may or may not be the same as your trailing stop, depending on the system you are trading. The idea is to get you out of the trade if it turns against you at an early stage, and thus to limit your losses. By definition it will be closer to the entry price than the trailing stop.


3. A break-even stop is where your trailing stop is moved to the point where the exit price is equal to the entry price. You will want to use this in a very volatile market where the prices fluctuate so much that you will keep exiting at your trailing stop unless you use a break-even stop.


4. If you are using a take profit stop, you determine your target profit in advance - for example, a certain number of pips. This protects your profit if the market then suddenly turns the other way. There is nothing to stop you having a trailing stop as well as a take-profit stop.

These exit strategies are all part of an effective money management system. As we have emphasised in previous posts, which particular money management method you use will depend on your personal approach to trading and what kind of Forex trading system you are using. But without following money management principles you simply cannot be successful in Forex trading in the long run. If you decide to trade with Easy-Forex, they will start training you in money management principles from Day 1, along with trading methods that ensure you make more winning than losing trades.

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