Saturday, October 4, 2008

Trading Forex, It's all about the Exits !

I decided to write an article about general forex trading since many people have a completely wrong idea of what is and what is not important when trading forex. A very common newbie and even experienced trader mistake is to think that the most important thing when trading is to enter the market at the right time. You couldn't be any more wrong. In fact, you can enter the market at anytime in a direction predicted by a coin toss and the strategy could be profitable if you know when to exit the market.

The most important thing when you are trading and what distinguishes a loser from a winner almost all the time is the ability to exit the market correctly. But, what is to exit the market correctly ? Well, there is a common phrase in forex trading that says, cut your loses, let your profits run, it is exactly that. But we all learn eventually that this is easier said than done, exiting the market requires you or your automated trading strategy to have a very careful plan, there must be some clear exit signals, market orders, etc. These exit signals cannot be any signals, they must be carefully designed to allow you to have the minimum possible risk to reward ratio.

Many people that make automated trading systems do not understand the paramount importance of this concept and they assign any values to stop loss, take profit and trailing stop levels, the system could have the best entries, but exiting the market at the wrong time is quiet fatal. Each assignation of these market order values needs to be carefully studied through deep analysis of the pair's trading ranges, the average movement of the pair after an entry, etc. When you study automated systems carefully, you realize this is almost their most popular Achilles heel, another one is money management which we will discuss at a later post. If you want to learn more about automated systems please consider buying my ebook on automated trading or subscribing to my weekly newsletter to receive updates and check the live and demo accounts I am running with several expert advisors. I hope you enjoyed the article !

1 comment:

dudelazio said...

Which broker u r using?

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