When to Exit a Forex Trade – A Guide For Traders

Want to jump straight to the answer? The best forex broker for traders is Avatrade

The #1 Forex Trading Course is Asia Forex Mentor

Forex trading is one of the main ways to make money in global financial markets. But it's also a very complicated sector. As a trader, you will need robust technical analysis to identify entry point areas and the exit strategy when the profit target is hit.

Every trader has his or her own trading style in the forex market. Each trader will also have an exit point where the market price of a given asset is ideal. However, this is not often as straightforward as it seems.

Regardless of your trading style, there are a lot of exit strategies these days that can help you with risk management, profit-making, and many other things. In this post, we are going to look at these exit strategies in detail, how they work, and when to use them in retail investor accounts.

When to Exit a Forex Trade: Some of the Forex Exit Strategies

As noted above, there are many ways to exit trades in any given trading strategy. In fact, trading exit strategies will apply in so many situations in the forex market. But before we discuss more on these entry and exit points, it is important to note that the risk of losing money rapidly due to leverage is very high in CFD forex trading. Ensure you understand these risks before you get in. Well with that said, here are some exit strategy tips that anyone can use in currency trading.

#1. Break in the market structure

This approach in currency pair trading is designed to help you identify changes in the market structure and how it affects your open positions. You see, while technical analysis can help you identify a target price and profit targets, at the end of the day, the price action in the market will move based on underlying market forces.

If you notice the market structure has changed, it may be time to exit. For example, is the market hitting higher highs and lower lows? Is there any high-impact news coming regarding the currency pairs you have? How about the initial resistance level in your analysis? Has it changed? All these questions will help you identify changes in trends that may help you close positions before you are exposed to bigger risks.

#2. Average True Range (ATR)

Average true range is often used by swing traders on any forex pair. In essence, ATR is designed to measure the extent of the volatility of a given asset. ATR shows you how the price action moves up and down during a specific time frame.

The metric is expressed in pips. So, if for example, the ATR is 50 pips, it means that during that given day, the current market price of the currency pair will swing between 50 pips during the trading day, If the asset moves above or outside the average true range, you may need to exit all open positions as soon as possible.

#3. Trend Trading

Trend trading is one of the most common trading strategies out there. Here, a trader will identify a trend line in the currency pair and will use it for swing trading and to also identify entry and exit points for all trades.

Now, if the trend changes, it means the market has moved. Change in trend will often be characterized by a sudden rise or drop in the current market price of any asset. When that happens, you should consider exiting if the price hits your target.

#4. Support and Resistance

Support and resistance levels are some of the oldest tools in technical analysis. They are very simple even for new traders to use. So, support is basically a price where a downtrend in a given asset stops. Resistance on the other hand indicates the ceiling where price rises are limited or capped.

When a currency breaks support, it means that more downtrends are coming. If it breaks resistance, it suggests that a bullish run could be on the way. Depending on your open position, you can decide to close based on how the price action moves.

#5. Relative Strength Index

Many foreign currency trading signals will always include the Relative Strength Index or RSI as part of the high-risk analysis. RSI is basically a momentum indicator that helps you to gauge if an asset is overbought or oversold. So, if an asset is overbought, it means that a lot of people are already holding it.

This creates very little room for upward momentum since bullish runs are triggered by buying activities. It also means that there is a risk of a sell-off if the investors holding the currency pair decide to take their profits. Exiting trades when the RSI moves from neutral to oversold or overbought is very important. Many traders use the RSI in combination with other signals when trading CFDs.

#6. Moving Average

There is this belief among short-term traders that market moves will always repeat themselves. This is where the idea of using the moving averages comes in. The average basically represents the historical average price movement of a currency pair over a given time.

It could be a 20-day moving average, a 50 day, or even a 200-day average. In most cases, if the current market price of an asset goes above the long-term moving average, this is a bullish sign and the reverse is also true. If it falls below say the 200-day moving average, it could be a bearish sign. Either way, you must exit a trade and maximize profit taking when this happens.

#7. Trailing Stop

Trailing stop is simply a way of securing profit while still keeping trades open. Think of it as a stop loss while you are already in the money. So, let's say for example your open position is already making 20% in profit. But despite market volatility and other market news, you believe that the market conditions could lead to more gains.

So, instead of just holding that open position as it is, you can set a trailing stop within for example the 15% profit mark. If the trade moves upwards, you get to make more money. But if you are wrong and the trend reverses, you still get to automatically exit at 15% profit. The trailing stop is one of the most popular exit strategies for professional traders in both day trading and longer-term swing trading.

#8. Stop-Limit Order

The stop-limit order is one of the simplest ways to exit a short trade or even a long one. In essence, you simply set the trade to exit automatically if a certain price is hit. The price could be a take profit or a stop loss. Stop limit order is more or less used to manage risk when trading complex instruments like CFDs

Best Forex Trading Course

Investing in the Forex market might seem to be a daunting task especially if you are a beginner, and have just started exploring the Forex market. Although experience is said to be the best teacher when dealing in the Forex market, it is good to learn about the Forex market briefly before making your first investment.

There are several ways in which you can start expanding your knowledge of the stock market. You can either start reading books or ask for tips from your friends or family members who have prior experience of trading on the Forex platform. However, the former is a time-consuming method while the latter is not always a credible learning source.

If you want to learn about investing in the Forex market that would help you gain knowledge, and tell you all you need to know about the market, then you can opt for some professional courses available on the internet. These courses are developed by Forex markets experts who have years of training Forex traders.

Now, there are thousands of courses on the internet that claim to teach you about Forex investment. However, not all of these courses are reliable and give accurate information. So which is the best Forex course for learning the ins and out's of the Forex market?

Asia forex mentor course by Ezekiel is by far one of the best Forex learning courses on the internet, and they are one of the best learning sources if you want to expand your Forex trading knowledge.

They have been featured on multiple different leading forex platforms and Forex events happening around the world. Ezekiel's platform is the perfect solution for you to learn because their clients include multiple trainees and bank traders from private trading institutions around the globe.

It is the number one course available on the internet because it also reaches new bank traders and has fun managing if you want to make money from trading forex stocks and other commodities.

You can get a great return on investment by indulging yourself in this systematic course. Even if you are a beginner in the field and do not have enough experience and knowledge about Forex trading, you still join this program with zero knowledge. Everything will be taught to you from scratch, and you can enroll yourself in this program right now to get started.

Check out the testimonials on the website and start your Forex trading journey right away. The good thing about this course is that you will be crystal clear about what you need to do from day one.

They are using a return on investment approach to teaching their students. It is a scientific method of beating the market, and you will not be taught this somewhere else.

Best Forex Brokers

Once you have developed the knowledge and skills needed to trade currency pairs, the next step will be to choose a forex broker. There are actually a lot of online brokers these days that can give you access to the currency market. But not all are ideal. We picked out four of the best brokerage firms that you can explore and here is the full list.

#1. Avatrade

Avatrade is an Irish-based forex and CFD broker that has been doing this for several years. The firm is known for its state-of-the-art trading platforms, including the popular MetaTrader 4 and 5. In addition to this, AvaTrade is a top-notch brokerage that is regulated in the UK and in several other tier 1 jurisdictions. For this reason, you can be sure that you have a much-needed safety net when you are trading the markets.

You will also be happy to know that AvaTrade has some of the lowest fees in the market. While there are other brokers that can match up to this, in general, you won't find a forex brokerage that offers lower fees than Ava.

Also, you get a huge variety of currency pairs to trade including the dollar and gold pair. AvaTrade also lets people trade commodities and indices as well. The firm has dedicated trading signals and trading research that can help you identify great opportunities to trade.

#2. FXCC

FXCC is in fact one of the oldest forex brokers in the market. Over the years, the firm has built long-term relationships with traders all over the world. Like AvaTrade, FXCC is also known for extra-low fees. However, the firm only offers the Meta Trader 4 as its only trading platform. But do not let this fool you. The meta trader 4 still remains one of the most advanced trading platforms in the world.

In addition to this, opening a trading account at FXCC is so easy. You only need basic personal details and a few address verification documents. FXCC is based in Cyprus, one of the leading financial centers in Europe.

It is regulated by local authorities as well for extra safety. The only downside with FXCC is that it does not offer trade research. While you will still get trading signals from the Meta Trader 4, it is not nearly as comprehensive as AvaTrade.

#3. Forex.com

If you are looking for top brands in Forex, then Forex.com is up there with the best and for good reason. For starters, the firm has invested in creating technologically superior trading platforms. The brokerage offers its own proprietary trading software but you still get access to Meta Trader 4 and 5 as well.

As for fees, Forex.com uses a spread-based system. As you can possibly imagine, the spreads here are typically very low. Customers will also enjoy excellent customer support, including live chat and all that.

Forex.com has also done well to develop high-end trading info with daily research and signals. You also get to trade over 4000 assets or instruments. If you are looking for a highly versatile forex broker that has a proven track record of success in the market, then you must consider Forex.com.

#4. Interactive Brokers

Interactive Brokers is not an exclusive forex brokerage per se. This is a full-service brokerage that offers stocks, indices, options, and other financial instruments. But its forex department is a huge part of the services offered here.

Interactive brokers started operations in New York back in the 1970s. The firm has gone through various evolutions ever since and is now regarded as one of the most trusted brokerages in the world. You will also enjoy some of the lowest fees here, a superior trading experience, and fast trade execution.

Interactive Brokers also offers state-of-the-art customer support, comprehensive trade education, and a wide range of trading accounts to suit different people. The biggest challenge with the firm is that it can be limited for folks outside the United States. But other than that, it is a solid partner in your forex trading journey.

Conclusion: When to Exit a Forex Trade

Knowing when to enter and exit a forex trade is one of the most important things for any trader. There are of course several different techniques to do this and we have highlighted them in detail above. But as they say, trading strategies are like golf clubs. There is always one that is suited for certain unique situations.

The most important thing to remember is that you must always reduce your exposure to risk. If you have managed to hit profit targets, then close all positions or set “break-even”. In essence, break-even means that even if your current positions start to bleed out money, the highest amount you can lose is the initial profit you had made. A break-even trade will close at the first entry point. As such, it allows you to continue trading with zero risk.

It is also important to use trailing stops when you are in the money. This is more or less used to secure or lock in profit. Even if the market moves, you are still sure of a return. Capital management is also crucial. Exiting a forex trade doesn't have to be profitable. You can still exit at a loss simply because you want to protect your capital. Stop-loss is a handy feature that can help you shield your portfolio from sudden market movements. Use it as much as possible when you are trading.

When to Exit a Forex Trade FAQs

What is the best exit strategy for forex?

It's really not easy to say. As we have rightly said above, there are many exit strategies, each with its own unique approach. Nonetheless, the type of exit strategy you decide to use will often depend more on your trading style and approach. But the most important thing is to always reduce exposure to risk as much as possible. For this reason, a stop-limit order or Trailing stop strategy will be ideal.

When should you close a trade?

There are several conditions under which you can close a given trade. First, if you have hit your profit targets, no need to be greedy. Just reduce your exposure to risk. It is also not uncommon to close trades in order to protect capital. For example, if you realize that perhaps the market is going against you, you can exit and save yourself further losses. It is also possible to close trades when you believe the market is trending strongly against your analysis.

How long should I leave a forex trade open?

Again, this depends on many factors. For example, if you have already hit your profit target, why keep the trade open? Secondly, ask yourself if there is any high-impact news coming in the near term. In most cases, it is far better to have no open position during periods of high market volatility.