There are umpteen strategies and methods to find the apt time to open a trade. But while traders are busy devoting their time and energy to find the perfect entry position, they often forget or neglect the other side of the trade. That is when to close a trade? Because if you don’t have a well-thought-out answer to this question, then your whole plan will be for nothing.
As you know, it’s not just important to make a profitable trade; you also need to lock in the profit on time. Or cut down the losses before they get out of hand. A financial market is an unpredictable place. Unexpected announcements and events can anytime change the flow of the market. In such a situation, erratic reversals can hurt your chances of profit on a trade. Hence, it is better to have a fixed exit position to limit the losses.
Another reason to have an exit strategy is the emotional vulnerability of traders. More than often traders get attached to their position and fail to close the trade on time. Or they are afraid of losing and end the position prematurely. Whatever may be the reason, letting fear or greed motivate a decision never ends well for the trader. That’s why you must take emotions completely out of the equation.
And to do that you need to establish an exit position the only time you are truly objective, i.e. even before you enter the trade. The common methods to achieve this would be using take profit and stop-loss order while opening a trading position. Stop-loss orders can help you minimize your losses if the market moves against you. Similarly, take-profit orders can help you lock in on the profits if the trend isn’t in your favor anymore.
But these are just ways to exit a trade, to develop a well-fleshed-out exit strategy you have to dig deeper. The first factor to consider is how long you are planning to stay in a trade. Because the exit planning for a short-term and long-term trader will be different. The second factor is to determine a beneficial risk-reward ratio. And the final factor is when you want to exit a trade. If you consider all these questions before entering a trade then you can come up with a decent exit strategy. Something that can help you to limit the losses, protect profits, and essentially save you from unexpected risks.
Risk Warning: This material is considered a marketing communication and does not contain, and should not be construed as containing, investment advice or an investment recommendation or, an offer of or solicitation for any transactions in financial instruments. Past performance is not a guarantee of or prediction of future performance. Trust Capital TC Ltd does not take into account your personal investment objectives or financial situation. Trust Capital TC Ltd makes no representation and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied by an employee of Trust Capital TC Ltd, a third party or otherwise.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 81.48% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Trust Capital TC does not offer Contracts for Difference to residents of certain jurisdictions including the USA, Iran, and North Korea. Please consider our “Risk Disclosure“.