Facts and Tips About Exit Strategies in Trading
Aside from risk management in trading, there is another very important aspect of trading that you need to understand –Money Management. When you enter a trade in MetaTrader 5 trading platform, you need to have an exit strategy that will ensure that you won’t prematurely take your profits. Exits points and entry points are both important in trading and you should plan your moves ahead of time. With an exit strategy on hand, you can minimize your profits as well as lock in your profits.
How To Properly Exit A Trade?
In trading, you only get to have two chances to exit a trade – one is by taking a loss or securing again. Talking about exit strategies, you either encounter the words stop-loss or take profit. These words all refer to a position being exited. There are times that these terms are also abbreviated as S/L or T/P by traders.
Stop-Loss (S/L) Orders
Stop loss, also known as stops, are very important orders that you can place on your trades, through your broker. This order automatically sells the asset when it reaches a particular point. It is important to use this order because it helps minimize your losses against swift market moves against you. Here are some rules that need to be applied when using stop-loss orders;
It must be set above the asking price on the current asset on a buy and below the bid price if it is a sell.
For Nasdaq stop losses, it can become a market order if the stock gets quoted at the stop-loss price.
For AMEX and NYSE stop losses, it gives you the right on the next sale when the price starts to trade on the stop price.
Three Types of Stop Losses
Good ‘till canceled (GTC) – this type of stop loss remains open until you cancel it manually or there is an executive order.
Day Order – this type of stop loss will just expire within a day.
Trailing Stop – this type of stop-loss order is following a certain distance from the market price. However, trailing stops do not move downward.
Take Profit (T/P) Orders
Take profit, also known as limit orders, works similarly to stop losses. It can be converted into market orders that sell the asset upon reaching a certain point. Additionally, take-profit orders follow the same rules as the stop-loss order when it comes to the execution of AMEX, Nasdaq, and NYSE exchanges.
Developing an Accurate Exit Strategy
Three things are needed to be considered to develop an exit strategy.
For how long do you plan to stay on the trade?
To answer this question, you must consider what type of trader you are or the type of trader that you want to become. If you are planning to stay with it for a long time, then you should consider setting profit targets, developing your trailing stop loss, taking profits in increments, creating a reliable exit strategy.
How much is your risk appetite?
You must know your risk appetite before you start trading in your MetaTrader 5 trading platform. To determine the risk level, you should point out how much you are willing to lose in each of your trades.