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One might regard forex as being somewhat simple: you just need to know which pair to trade, when to get in, and when to get out. (An exception to this is with carry trading, where you also need to pay attention to a few other factors). Here we discuss some of the major signals for knowing when to exit a trade.

The basic set of tools, provided for free by most forex brokers, are almost identical to the entry signals. With entry, you look for a trend and jump in just before it starts. With exits, you simply look for the end of a trend or the beginning of a new one, and jump out before it’s too late.

The big difference is that you are not usually looking for a new trend. By the time you can identify that a new trend has begun and is measurably significant, it’s already too late—you’re losing money. Instead, you should exit the market as soon as it is clear that the trend you bought on has ended. Trend following is just one of several ways to become successful in the forex market.

So you could start with crossovers in the moving average. If you used that to identify an uptrend, now you’re looking for a reversal with crossover from above. But hopefully you won’t get that far. Instead, you should watch the percentage of change in the short term moving average. If the short term average remains unchanged over a period of time, the trend has probably ended.

Of course, this means that the average directional index (ADX) or moving average convergence/divergence (MACD) both become more significant for you. Look for stabilization or stagnation in these indicators as a signal for the end of a trend. Some of the most helpful forex exit signals are the momentum indicators such as TRIX, smoothed rate of change, or relative strength.

It is also easy to draw a trend line based on Fibonacci pivot points. When prices begin to fall below the original trend line and you see a new pattern of pivot points, the trend has ended. Look for resistance or support that offers any type of pattern. You can also rely on exponential moving average (200 EMA). The problem here is that it is often hard to know if you are dealing with a new trend or just with retracement. This is where price candles can be helpful in some cases. Since the end of a trend is often more analytically complex than the beginning, knowing your analysis well is very important.

News shocks are generally a bad way to make exit decisions, since your response will be too late, anyway. However, if you do have reason to suspect an event and you are more accurate than the market, this might be useful. Generally, your stop loss order will kick in before you can.

And this is where the most important exit signal comes in. You should always have stop-losses in place for every trade you make. Quite simply, you’ve found an exit signal when your stop-loss kicks in and ends the trade for you!

This also relates to the biggest value in automated systems: rely on your software to free you from a position before you lose too much. You can set this up in complex ways to help you even with profitable trades. If more traders relied on their own analysis to get them into the market and software as one of several signals to get them out, they would significantly improve their profits.

Published in Forex Guides

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Polls

Which is the Best Forex Broker you have traded with?

Interview with Matthew Sheppard

Senior Forex Advisor at XForex


1. What is your name and position?

Hello, my name is Matthew Sheppard and I am a senior forex advisor at XForex.

2. What is your experience and professional background?

In the last 6 years I had filled several positions in financial institutions such as a stock broker, a foreign exchange desk manager, a financial consultant and in my recent role I serve as a senior Forex advisor for XForex which is an online forex company.

3. What type of clients you deal with?

We deal with clients on all levels from the beginning stages to the more advanced trading levels.

4. Does most of your business activity come from the online or offline world?

Because of our high presence on the web, most of our business comes from the online world.

5. Why should a trader pick XForex from all forex brokers?

Aside from all the benefits that XForex offer like commission-free trading, 24/7 online support, high leverage (200:1), XForex offers educational and learning trading experience that you won’t find anywhere else..

Our team of experts and financial trainers provide personal assistance and guide clients to financial success. We provide daily analysis and market reviews to our clients giving them a better understanding of the market and helping them trade profitably.

6. From your experience, what advice would you give a person who wants to enter the forex world?

My advice to the beginning trader entering the Forex world is as follows:
  • Learn the market and understand what you’re getting into.
  • Research and find the broker that suits your needs and wants. Look for a good offering but more importantly customer service, don’t go for the low rates offer without being certain they have a good customer service department. From my extensive experience in the Forex world your key to success will be your client-broker relationship. I can honestly say that at XForex they put an emphasis on servicing clients, which is so important.
  • Invest smartly and calculate your risks.
  • Always know when to get out of a trade.

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