In this article, we will look at the best forex entry and exit strategies to use for entering and closing trades, and then we will look at a step by step guide that will help you master the craft of entering and exiting a trade with the accuracy of an eagle.
A trade entry and exit mark the fate of a trade. Your trade entry and exit determine how big or small your loss or profit will be.
I interact with lots of traders, some with trading systems and strategies that others find profitable, but when these traders employ the same strategy, they never turn a profit. When you pore through their trading statement, you notice patterns in their trades that point to lousy trade entries and exits.
My thinking is that most traders don’t care or think much about entries or exits in the long term, yet it does affect their trading results.
Could it be that a little attention to your entries and exits would improve your profits?
We’ll start with the basics.
Forex Entry Strategies – How To Enter A Forex Trade
There are two main strategies for placing trades: entering at the current price (market execution) or waiting for the price to hit a certain level (pending order)
Market execution order
In the market execution strategy, trades are placed at the prevailing market prices.
Typically, hitting the buy or sell buttons of your trading platform will execute the orders at the current market price.
Expert Advisors (EA) or robots can also execute trades at current market prices.
A pending order waits for the price to reach a defined level to enter a trade.
Above the current price we have:
A sell limit – a sell order is executed when the price hits this level
A buy stop – a buy order is executed when the price hits this level
Below the current price we have
A buy Limit – a buy order is placed when price touches this level
A Sell Stop – a sell order is placed when price touches this level
How to enter a pending order on Metatrader (MT4)
The easiest way to enter a pending order is by right-clicking the chart of the instrument you want to trade, go to Trading then click the pending order you want. See the images above showing the buy and sell limits.
Another way is pressing F9 on your keyboard. You can also right-click the chart and click the New Order under trading.
On the order screen that pops up, under Type, select Pending Order from the dropdown menu.
Now select the type of pending order – remember to sell or buy above the current price; you set a Sell Limit and a Buy stop, respectively. And to sell or buy below the current price, you put a Sell Stop and a Buy Limit, respectively.
Set the price and the expiry date (if you want) to cancel the pending order if the price does not reach that level, and then hit the Place button.
Forex exit strategies – How To Exit A Forex Trade
A good discipline to cultivate as a trader is to plan when to exit a trade – with a loss or profit – before or as soon as you place a trade.
There are four ways of exiting a trade: closing a trade at the current price, using a stop-loss order, take profit order, and a trailing stop.
For consistency and for squeezing the most profit from trades, I recommend using a stop loss order, trailing stop, and the take profit order to exit a trade.
- Stop-loss order. A stop-loss order limits how much you lose if a trade goes against your prediction. When the price reaches the set level, the broker automatically closes the trade.
A stop loss is always set above a current buy price or below a current sell price.
Stop-loss limits can be set: several PIPs away from the entry price (consider the movement of the instrument you are trading)
Below the previous low for a buy order and a previous high for a sell order
A few pips below a support level for a buy order and a few pips above a known resistance level for a sell order.
- Take profit order. A take profit order is a price limit that automatically closes an open trade with a profit when price hits it. This order specifies the actual set price or specific profit point at which you leave a position or close the trade.
Take profit orders are normally set above the present ask price when buying a currency pair or below the selling price when selling a currency pair.
Place take profit orders: based on a risk-reward ratio. For instance, if you risk 10 pips, on a 1:2 ratio, set the Take profit 20 pips away from the opening price.
Place take profit orders in the next likely support level for a sell and resistance level for a buy.
- Trailing stop. A trailing stop is an exit strategy that follows price movement. It moves the stop-loss in-step with price movements by the number of pips you define.
How to set stop loss and take profit in MT4 and MT5
You can set the stop loss and take profit orders when you open a trade.
You can also set it by double-clicking an open trade on MT4 or by dragging the open trade. For an open sell order, drag the trade up to set the stop loss and drag it down to set the take profit.
How To Optimize Profits With The Best Entry And Exit Strategies
As you have seen, entering or exiting a trade is not complicated. Even a child who knows how to click and right-click can place a trade.
The real challenge is entering and exiting trades that make you money.
These entry and exit points are critical. It is why advanced traders make it a priority to strictly abide by trading rules and proper risk management that’ll help in finding the best entry and exit for their trades
We’ll now look at some steps you can follow to enter and exit your trades right so you can consistently profit.
STEP 1: Adhere to the rules of your trading strategy.
If you don’t already have, create and only trade within the rules of a trading strategy.
Without a strategy, you are like one playing darts blindfolded. Your wins are purely out of luck.
Besides, an optimized trading strategy will help you know when to look for opportunities or stay away from the markets.
A strategy helps you scrutinize the market correctly and pinpoint entry and exit opportunities in a chart.
Step 2: Pick your position.
Studying the market should lead you to a currency pair or instrument with the best prospects. To analyze the market, you can employ indicators, check the fundamentals likely to impact a currency pair, study price action patterns using candlestick patterns or chart patterns.
Next, decide if you will go long or go short. Go long means you’re buying the currency pair, and go short means you’re selling.
Forex trading aims to generate profits from the difference between the entry price and exit price. To buy a currency pair at a low price and sell –close – it at a high price.
So, your task is to find positions with a high likelihood of going further away from the opening price.
Step 3: Decide how much you can risk on a trade
You may have a strong bias to where the price will go, but how much of your money are you willing to bet on your inclination?
Lot sizes – the amount of position you’re trading underpin proper risk management. Several Forex brokers give a standard lot worth $100,000, while some provide mini lots and micro-lots at $10,000 and $1,000, respectively.
Use a lot size enough to protect your account as well as grow your account.
It is advisable not to risk more than 2% of your equity in a single trade.
Step 4: Set your stop loss and take profits.
Stop-loss orders permit you to close a position at a particular set price when you’re losing a trade.
While Take profits enable you to take your gains at a set level.
A proper stop loss and take profit strategy depend a lot on the performance of your trading strategy. If your system produces more wins than losses, you can easily set go with 1:2 or even a 1:1 risk ratio. Meaning, you can set your stop loss and take profit ten pips away from the entry on either side on a 1:1 risk-reward ratio.
However, the rule of thumb is to always trade with a stop loss and take profit limits.
Step 6: Closely Monitor Your Trades
Once you are in a trade, you need to monitor your trades and positions closely. If you are a positional trader, you can set your trades and shutdown your trading station, and let the market do whatever it wants. If you are scalping because the market can be volatile and market conditions can change at any time, monitoring your trades can enable you to cut your losses or increase your profits.
Step 6: Journal your trades
The cycle should end with you logging your trades. It can be in an excel sheet or a dedicated forex journal software. In either case, you can only improve as a trader if you actively track your trading decisions. Read my guide to keeping a forex trading journal.
By using pending orders, using stop loss, and taking profit orders, you can squeeze the most profits from your trades.
What is your strategy for entering and exiting trades? Leave a comment below or on social.