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Trade Exit: How to Know When to Get Out

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When you ask most traders what the most important part of a trade is, the majority of them will simply state that it is the entry position, however, there is something just as important, the exit position, when you need to get back out of a trade. There are a number of different things to think about when it comes to getting out of a trade and they can really make or break the profit or loss that you receive.

If you have made a proper risk management plan and trading plan then you may well have considered the possible exit strategies that you could use. However, there are occasions where things may not go to plan or where you need to make some decisions as you are trading. So let’s take a little look at the sort of things you should be considering.

What are you prepared to risk?

Hopefully, you have a risk management plan in place, but if you don’t, as a trade is going, you need to consider how much of your account you are willing to risk. We would always suggest using a stop loss, but if you haven’t you should not be sitting there watching the markets and hoping that it turns, instead you need to get out, you must consider what percentage you are willing to lose, once the markets hit that stage, close the trade. Learn from this and set stop losses in the future

How much profit do you need?

Pretty much the opposite of what we mentioned above, when a trade is going the right way, when do you close the trade for the profits? Do you let it run and hope for more even though there is a risk that it could turn? Again this is an opportunity to use the automatic closers in the form of take profit levels, this way you will have the profit that you want already set, and it will take it and close the trade as soon as it is met.

What sort of trade is it?

Are you going for short term scalping, day-trading or long term trades? This will have an influence on when your trades are closed, if you are scalping then they should be relatively small and short trades, day trades will often be closed at the end of the day before the markets close and long term traders you will be holding for a long time. Depending on the type of trade, you may need to close it sooner than expected or later should the markets require it.

Is additional analysis needed?

Do you continue to analyze the markets after a trade is open? Things change in the markets, so continually analyzing them can help you understand if it is time to eventually get out of the markets, even if it is not the right time. If the markets are turning, it may be beneficial to get out earlier than expected to help save some losses or to guarantee some profits.

Do you do any of these things, if you have a set and forget strategy with stop losses and take profits then you most likely do not need to, however, if you do not, what makes you come out of a trade and does it work for you? Just remember that coming out early can be both beneficial or detrimental to the overall results. Set the line with your trading plan and strategy and things should be a lot smoother.

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