Tag: Market Exit

Categories
Beginners Forex Education Forex Basics

How Long Can You Leave a Forex Trade Open?

Who is asking, a trader, or an investor? Do you think setting a time limit for each trade is a good idea? Do you think investors who bought physical gold 10 years ago held it for too long? How about people who bought bitcoin in 2016? Trading is essentially a calculated process that is managed […]

Who is asking, a trader, or an investor? Do you think setting a time limit for each trade is a good idea? Do you think investors who bought physical gold 10 years ago held it for too long? How about people who bought bitcoin in 2016? Trading is essentially a calculated process that is managed […]

Who is asking, a trader, or an investor? Do you think setting a time limit for each trade is a good idea? Do you think investors who bought physical gold 10 years ago held it for too long? How about people who bought bitcoin in 2016? Trading is essentially a calculated process that is managed by a trader’s system, on any timeframe and any asset. A system is a combination of a trading algorithm, various strategies, and one’s approach to trading. The duration of any single trade will need to be a well-calculated decision that will include all of the strategy components, excluding vague and intangible factors such as luck or emotions. Today, we are digging deep into how long a trade should last with an overview of different rules and methods any trader can apply in trading.

System

As we said above, a developed system is an essential part of trading. A trade that is filtered through different indicators will be the right trade to enter, leaving bad options behind. Also, if you manage your settings properly, you will know that your trade will run accordingly – neither shorter nor longer than what you would want it to. That is why choosing the right exit indicator is one of the key steps in assessing how long a trade should last. Reversal indicators, for example, are believed to give reliable exit signals, but the overall duration of a trade depends on other factors as well. 

Risk

Risk management may sound like a complicated word, but it actually serves to protect your finances and prevent losses. Therefore, knowing when to exit a trade will, on one hand, help you with your winning trades and, on the other, assist with managing your assets and your account. There are several fundamental terms that we need to define here to be able to assess how long a trade should last.

Stop-loss & Take-profit Points

A stop loss is a point in the chart where your trade will automatically close down and +. It constitutes an important exit strategy that will handle your trades so that you do not need to sit and oversee what is happening with the market or worry if the price starts moving in the opposite direction. With the use of the stop loss, you will always know exactly after how many pips a trade will close in a loss. When it will happen should not concern you.  When you are in a single trade, your take-profit point will also be the moment where your position will be closed. 

Strategy

Sometimes, depending on your strategy and the platform you are using, your take-profit points are going to differ. If you are using the scaling out strategy, you will take 50% of your trade off the table, for example, and then move your stop loss to the break-even point (the point where you entered the trade). The remaining 50% of the trade will keep going for as long as it needs to, naturally running its course. There is no limit to how much you can gain. Why limit this part anyway, it can last for weeks. 

Traders eager to apply the buy and hold strategy usually decide to hold a stock or commodity for a long period of time, so their take-profit will depend solely on their strategy and plan. However, it is increasingly important for traders never to change their initial plans after entering the trade.

Time frames

Time frames also affect how long a trade is going to last. The daily time frame may be a great opportunity to enter longer trades, but this decision often varies from one trader to the other. Some traders may be driven to use smaller time frames to achieve faster (but smaller) wins. The choice of a time frame is going to depend on the market conditions and one’s strategy as well. Sometimes, when the market is dead and the volume is really low, traders choose smaller time frames for a more aggressive strategy. The decision of which time frame you are going to use needs to be in alignment with other aspects of your trading approach, as it will inevitably impact the duration of the trade.

Market

It is also important to mention how market conditions affect the duration of trades. While a well-tested system is the main way you can protect your account, it may happen that the market is so out of control that your system never recognizes the need to exit. While these situations do happen even to the best and most experienced traders, you can always take additional precautions by not entering trades that could turn out to be a problem. These trades involve all currencies that are heavily affected by the news (e.g. the USD) and all major events such as elections. The USD gets easily triggered by even the smallest pieces of news, such as the President’s tweets. In the midst of the Brexit talks, the GBP was also not the best currency to trade, not just for the problematic exits but the overall market condition as well. Volatility does affect any system if the market gets so out of control and we should, thus, do everything to avoid situations that may keep you in the game too long, thus endangering your finances.

Psychology

Many traders are afraid of making a mistake and losing their money. As a result of these fears, their trading is controlled by their emotions, which can have quite a negative impact on the results too. Sometimes, traders decide to tweak the setting in the middle of the trade and exit the trade prematurely. Other times, they are afraid of risking too much, so they end up underleveraging and making their trade last much shorter than necessary. Anxiety is another reason why many opt for smaller time frames, hoping to be able to exert control better. Traders may even ignore the signals their systems are giving them because they hope that a particular trade is going to trend even better in the upcoming period. Overall, these examples reflect poor trade management and should be handled with care. Each trader has a responsibility towards himself/herself to discover the situations that trigger such reactions and prevent them from happening.

Best Exit Points

The best moments to leave the trade are those that your system gives you. We cannot base our trading on intuition and sentiment because our wins, and losses as well, will then be in the hands of luck. Exit points must be calculated with precision and understanding of why this action is taken at that moment in time and chart. Learning about different strategies and time frames can make this process much easier, along with thorough testing and practice.

Conclusion

With a demo account, everyone can see if every exit indicator used works properly. Backtesting and forward testing will further show if the combination of indicators is giving the best possible results. The only requirement that each trader needs to satisfy is to carry our proper journaling, listing all trades with every entry and exit point. What is more, using a demo account will also help traders learn about themselves because we are often unaware of our reactions when money and security are involved. Since exiting trades is not a matter of how you feel at the time you are trading, you will surely benefit from applying the risk management advice we provided, as it will save you and your account from unnecessary losses, whether they come from staying in a trade for too long or too short.

Whatever you do, do not keep your trades running just because you hope a windfall of money is around the corner. Instead of obsessing about the length of your traders, rather focus on the risk and money management principles that will provide you with the security you may be looking for elsewhere.

Categories
Forex Stop-loss & argets

When Should I Sell a Short Position in Forex Trading?

Interestingly, this question assumes one knows when to go long and when to stay put. The notion that some assets cannot go down to zero spurs the idea going long is safer while shorting has a cap – when the assets become worthless or at zero. This might be true to one type of trading, […]

Interestingly, this question assumes one knows when to go long and when to stay put. The notion that some assets cannot go down to zero spurs the idea going long is safer while shorting has a cap – when the assets become worthless or at zero. This might be true to one type of trading, […]

Interestingly, this question assumes one knows when to go long and when to stay put. The notion that some assets cannot go down to zero spurs the idea going long is safer while shorting has a cap – when the assets become worthless or at zero. This might be true to one type of trading, with penny stocks and with altcoins in the cryptomarket. The strategy is about holding cheap assets that are about to get noticed sometime in the future. Depending on how you diversify your strategy, this day may never come. Shorting what is already cheap does not make sense, right?

It depends on how you make that assessment and on what timeframe. Expecting gold, for example, to rise in the next hour makes it cheap to buy currently, it is irrelevant if it went to record highs in the current year. Stocks especially are regarded as the assets where investors buy and hold for a longer period, for a few years for example, on the other side, shorting on such a long period is very rare. Certainly, there is a difference, but in forex, we do not have such assets or currencies that can justify preference to go only long. We are not going to discuss how to get a signal to go short here, it is something traders have to develop along with their strategies and systems, it is a very broad and lengthy subject.  

Let’s take a look at the USD. The chart below depicts the USD basket movement (against the other 7 major currencies) for the last 10 years. 

To some investors holding the Dollar proved to be a good investment if we compare it to other major currencies. However, a stock index such as the S&P 500 shows a much better proposition:

Indexes are derived and calculated based on the stock’s aggregated value, in USD. Concerning other currencies, the USD didn’t lose any value but compared to the performance of the stocks, it is evidently short. Therefore forex provides just as good opportunities to short as to long a certain currency. We should keep in mind we can short one currency by holding other assets whose value is expressed in that currency, in our case the USD. 

If we strictly limit our trading to fiat currencies, we are actually looking at the money flow, which can always go in different directions and therefore provide short and long trading opportunities. Currencies went away from the Gold standard and now have complete freedom how they can change value. Most traders think there is no supply or demand in forex, no forces that can push a currency because it is scarce, in-demand, or surplus. Actually, when governments have printed so much of a currency it tends to be devalued, but not because of the surplus effect per se, but from the perception of its value. 

Traders should be familiar with the crashes, economic cycles, political events, wars, and now even pandemics that drive the bear market. They set up extreme moves and knowing how and when to short positions is probably the quickest way to get wealthy, much faster than longing for an asset for many years. One bear rush can easily cut gains made for a decade in one week sweep. Risk-off currencies such as JPY, CHF, and USD will spike so we also have the other side of the coin. Crashes come and go fast, development is long and slow. 

Now, we are going to try to pin down several actions that could lead us to make the most out of the bear markets, be it forex or equities, it does not matter as explained above. Financial advisors are mainly long, just because that is what they know about, it is very rare to hear your financial advisor to go short. Once an economic downturn comes you will be stripped. Take a look at the S&P 500 chart once more, how come the US economy went up 50% since the Trump takeover, and even “after” the pandemic it is at a new record high? Take a look at the global interest rates – around zero levels. Governments print money, so we have all the ingredients to go short here, long term.

However, take a step back, the printing of fiat can keep up, the indexes can even go higher. The turning point is when the psychological value of money disappears. This has not happened yet, and it may even come in 2030. Traders need to get out at the buy and hold safe heaven assets strategies here before the crisis comes. Be proactive and trade only swing trades if you have a setup for other, risk-on assets such as indexes or risk-on currencies. A lot of fundamental data conflicts with the real situation, when it unravels the markets may even be close for trading, leaving you trapped with losing positions. Also, use inverse ETFs if you need to short an asset that you cannot the normal way. 

Try to find contrarian traders online through social media. Twitter and YouTube is a good start. Make sure they have logic, data, and sense to back up their points. Follow their networks and diversify on angles on the same topics. Then take your own point on the economic status with your own research on this and make decisions. Some examples of notable people prop traders mention are Chris Martenson, Peter Schiff, and Ray Dalio. Some of them make predictions, some are reserved, but digest on how they interpret the economic data to understand what is going on in the markets. These mechanisms, knowledge, will be your guide when to short the right assets. 

When it comes to “when”, trust your strategies and systems. Trying to trade others’ predictions is not a good idea. Most of the predictions fail, or they are not well defined to be of any use to a trader. Never try to follow opinions like the famous “buy the dip”, “buy while it is cheap” and so on. These opinions are not aligned to you and are probably reversal traders that trade before the trend. It is very arbitrary what is cheap when it is still in a downtrend. The big shorting before the crisis is quietly announced, you may even lose once or twice (have you shorted the two fake drops in S&P 500 since 2018?) however, the huge drop in 2020 lasted only for 30 days, negating everything made for the last 4 years and could as well be much more than make up for the two losers.

Interestingly, the markets recovered in 2020 and are making all-time highs at the moment of this article. The epilogue might be an even bigger drop you will be ready for in 2021, you know all the story behind it, and your systems will show the signal when it is time to short. 

Now, if you really believe in the fundamental analysis, you want to hold safe-heaven assets long term, in this case, you do not have to wait for the technical. Just go with your prediction and stick to it even if that asset is down for the year. You are looking at the long-term hold here, and some assets, such as silver, for example, have extremely bullish data, as described in our previous articles. Whatever happens, be sure to diversify your bearish and bullish positions across various assets. In a bear market, there are two sides to the coin, the bullish reversal is around the corner, then another bear pull. It went wild during this pandemic in 2020, you might as well use the opportunities in 2021 and grab years worth of profits in a short time. All markets are in, not just forex, pay attention to indexes, crypto, hard assets, and others under the CFDs.

Categories
Forex Stop-loss & argets

Exit Indicators: When to Exit a Trade

While forex traders usually have a number of practical questions regarding indicators and other useful tools to help them make a profit, some of them rarely think of developing a stable strategy that will function as the foundation for growing as a trader in this market. Instead of adopting a comprehensive plan on how to […]

While forex traders usually have a number of practical questions regarding indicators and other useful tools to help them make a profit, some of them rarely think of developing a stable strategy that will function as the foundation for growing as a trader in this market. Instead of adopting a comprehensive plan on how to […]

While forex traders usually have a number of practical questions regarding indicators and other useful tools to help them make a profit, some of them rarely think of developing a stable strategy that will function as the foundation for growing as a trader in this market. Instead of adopting a comprehensive plan on how to be better traders, some forex enthusiasts seem to be more interested in outside factors and tips that will help them get a lucky win in no time. Since time is money, as they say, it is also an impotent element in trading in the fiat market on quite a few levels, which is why will be dealing with the question of what the best time to exit a trade is.

How long a person should hold onto a trade is certainly one of the key topics due to the fact that acquiring a sense of a timely reaction and knowledge on when to exit is what will preserve your finances after all. While the ability to stop trading on time may seem easy to acquire, it in fact requires traders to possess the key tools and skills that can allow this to happen. Of course, to offer a detailed and informative response, and draw some constructive conclusions on the way, we must strive to see the bigger picture and objectively assess the situation from all angles, looking into all the layers of this matter.

In order to manage time, the first foundation tier you should be looking to build is a proper algorithm, which will consist of several indicators that will signal you to take action at specific times during each trade. Some of the most successful traders in this market use a six-piece toolbox, consisting of several indicators such as ATR, a confirmation indicator, and an exit indicator. The last one, the exit indicator, is an extremely valuable asset to your trading kit because having an indicator that can tell you when to stop trading is what will safeguard you from failure while still allowing you to enjoy some lucrative trades. Such an indicator can therefore also signal you to exit bad trades on time without letting you destroy your finances. Finding the right exit indicator is what many professional traders advise other market dwellers to focus on and they keep stressing the fact that these indicators should be an essential part of an algorithm every trader should aim to make.

Secondly, it is crucial that you ask yourself what kind of trader you are. If you are a timid trader who fears following the momentum in a trade, you are also the one who runs away as quickly as possible for the fear or crashing down, which prevents you from seizing the moment and rising to the professional level. You could also be a reversal trader and one of many who cannot thus exploit this market’s full potential, either because of inexperience or due to mistaking forex for another market such as the stock one.

Reversal traders more often than not fail to grasp the importance of exiting a trade before things get really ugly as they go too deep trying to call reversals without understanding how trading currencies essentially works. This group of individuals has yet to learn that only once they exit the trade will the big banks redirect the prices and decide on their immediate future, which naturally leads to the conclusion that trend trading is every trader’s best possible strategy and means to enter profitable trades.

Apart from finding a good exit indicator that will help traders get out just in time, the topic of strategy is then equally vital as it entails designing a comprehensive plan that serves to protect them and guide them throughout different trading stages. Calling trends should be the first idea based on which a trader can start planning how to go about future trades, which is why it is intricately connected to today’s question of when to exit.

The most prominent figures in this market often indicate how important it is to decide on when exactly a trader would want to finalize a trade, and some of the advice centers around the idea of taking half of the trades off after a price hits a certain point and upon gaining a specific number of pips. Therefore, traders can end a trade when a price hits the break-even point, the stop loss, or the trailing stop loss or upon receiving a signal from the exit indicator. Simply put, you should keep trading as long as a trend lasts and your best friend here is the algorithm you have worked to build, including an exit indicator, as well as the plan which outlines how you will manage a trade you are already in.

An immediately following question is what a really good exit indicator does. To begin with, you should bear in mind that a tool providing such useful insight will probably not be the zero-cross indicator. However, in terms of actions and functions, it should be able to provide you with two-fold assistance. You will firstly want your exit indicator not to be too rigid, preventing you from following the momentum and using the power of big trends, which will in effect help bring you profit. Since prices oscillate and they also have retracements, you should not be looking for an indicator that will cut you short before you get the chance to get as much money as you can.

As some indicators function precisely in this manner, they push you out on some of the first retracements you come across and make your exit way too early. In comparison, more often than not, a good indicator should let you end a trade before a price drops and hits your trailing stop. In addition, to be further aware of how to use an indicator to assess the best time to stop trading, you should keep in mind that exiting a trade at the very top or bottom is never recommended. Your goal should always be to get as close to either of the two extremes, which should still bring you a substantial amount of pips.

The next step in growing as a trader and understanding when to exit certainly includes the relevance of the concept of time in building a trading mindset. Whether you are a beginner or a professional, you must already know that developing an algorithm and finding the tools which lead to profitable outcomes takes time. Some of the best trades professionals did also lasted for a period of two months even, so learning how to be patient and practicing this virtue in various aspects of trading will relieve the tension of asking the question of how long to trade. Time alone is of no importance, but it is one of the central notions of building trading psychology.

Learning requires persistence and diligence as much as withstanding some of the impulses to exit a trade before time. You may also need time not just to discover a good exit indicator, but also to test how it can function better after making some settings adjustments. Instant gratification will undoubtedly put you in the same category of people recklessly losing unbelievable amounts of money at once. All in all, instead of exhibiting such a casino player mentality, to gain satisfaction and amass a fortune, you truly need to invest in growing a more sustainable approach and set your priorities straight.

Categories
Beginners Forex Education Forex Stop-loss & argets

What to Consider When Planning Trade Exits

When it comes to planning trades, the majority of people will instantly think about planning to get into a trade, but there is an entire second part of each trade, the exit. Getting the exit right can be just as important as the entry, if you get it wrong you can miss out on some […]

When it comes to planning trades, the majority of people will instantly think about planning to get into a trade, but there is an entire second part of each trade, the exit. Getting the exit right can be just as important as the entry, if you get it wrong you can miss out on some […]

When it comes to planning trades, the majority of people will instantly think about planning to get into a trade, but there is an entire second part of each trade, the exit. Getting the exit right can be just as important as the entry, if you get it wrong you can miss out on some potential profits, or you can potentially lose out and make some very large losses.

Some strategies even focus on the exit rather than the entry as they know the importance of it, so why exactly do people seem to negate this part of the trade? It has simply come down to the fact that people look for profits, in order to do that they need to put on a good trade, even those that look at the exit of a trade often just look at the basics of it, the stop loss and take profit and pretty much nothing else, but we need to think about a lot more.

So we are going to be looking at a number of different things that you need to be thinking about when you decide to plan your exits and the importance of doing so.

What are you willing to risk?

Your risk management plan should be the first stage of planning your exits. This will detail exactly how much you are willing to risk with each trade or how much of your account you are willing to risk each day, week, or month. Many traders look to risk 1% to 2% of their account per trade. However, each strategy is different and so some risk much less and some more. It will all come down to you and how much risk you are willing to hold and also your strategy. Ensure that you have this planned, it will give you the baseline for when you need to get out of a trade, either through hard stop losses or trailing stops, whatever your method, ensure that you know how much you are willing to risk with each trade. Do not be afraid to alter it, if it is not working the way that it is, there is no harm in altering it in order to more suit yourself and your strategy.

At what point do you cut your losses?

You will have trades that go negative, everyone does and it is a major part of trading that you cannot avoid, especially considering that the majority of trades always start out negative due to spreads. What you need to ask yourself though is where and when you should cut your losses, how far are you going to let it go? This works along with your risk management plan and can indicate to you where you should be putting your stop losses. While you should always be using stop losses, there will inevitably be times where you don’t, others through purpose or just due to completely forgetting it. If this happens, you need to know when and where you will get out of those trades, the last thing that you want to do is to let it run indefinitely, so have an idea that is based on your strategy of when you will want to cut the losses should things go the wrong way.

What if your tradies invalidated?

The markets can be a little unpredictable, this is very much true, but the world can be just as unpredictable, and there can be events happening that will completely invalidate any trades that you may have placed. There needs to be a contingency plan in place just in case this happens. What could result in this? A Tsunami or earthquake or more recently, a pandemic that goes around the world taking out a lot of the world’s economy, when things like this happen you will need to act.

You need to have an understanding of what you would do, if things are suddenly going crazy in the world and with the markets, are you going to exit your trades in order to save them and your account? If the market consensus has suddenly gone south and against you, it may be a good time to close out and reevaluate the markets before entering again. There is also the argument of letting it run as things can be unpredictable and so could go the right way too, but this is down to you and your strategy. Just make sure that you are prepared to make changes and potentially cause trades should things go a little crazy out there.

How long are you going to hold your trades?

Initially, this will come down to your strategy, those that are scalping will be holding their trades for a shorter period of time while those that are using a swing trade strategy will of course be holding the trades for a long time. However, even within these sorts of strategies, different people will have a different idea of how long they should be holding onto their trades, ultimately it will be up to you how long you hold it, but what is important is that you have an idea of how long planned before you make any trades.

Consider your strategy, consider your own risk style, and plan how long you will hold your trades. It is vital that you try not to come out of trades too early or too late if you do it can skew your overall strategy and risk management plan, keep your trades in line with your risk to reward ratio so even when you do need to cut losses, you are doing so in line with this and so it will help to keep your account profitable.

So those are a few of the things that you may need to consider when you look to exit a trade. Try not to only concentrate on the entry, while that is, of course, important, it is just as important that you get out of a trade in the right place. Stick to your plans, your strategy, and your risk to reward ratio and it will help you and your strategy to become a lot more successful and profitable in the long run.