The exit point is the time that a trader decides to close their position. Knowing when to take or bank profits that were earned is one of the most crucial factors of trading.
Locating the perfect exit point is not a clear-cut process and can become quite troublesome for traders. There is no singular sure-fire way to implement this process in a profit-earning capacity.
Three strategies have proved effective in aiding with a profitable exit point; the ATR or average true range, the [moving average], and lastly the conventional method of [stop-loss]. However, over the continual trading process, each trader develops their own set or different strategies that work for them while employing risk management.
Both [entry] and exit points are pivotal to a trader’s strategy as they seek to increase their profits and manage their losses at the same time.
For first-time traders, it is highly recommended to begin with a demo account or a [paper trading] with CFI. Having a demo account allows a new trader to test new strategies and techniques as well as test and refine their trading strategy in a risk-free environment, helping them to prepare for the scenarios that they will face in the markets, before introducing the risk of sacrificing actual securities or assets.
The recommendation will always be “enter low and exit high” but not without proper strategies for each point mentioned. It is common for traders to be overly focused on the entry point and not have a workable strategy in place for exiting, leading them to lose out on profit-earning opportunities.
Two common approaches for an effective strategy are to either exit on strength or exit on weakness.
Key takeaways:
- An exit point is when a trader decides to close a position
- Knowing when to take profits is a crucial factor in fx trading
- ATR, moving average, and stop-loss are three effective exit strategies