Money management is one of the most important (and least understood) aspects of trading. Many traders, for instance, enter a trade without any kind of exit strategy and are therefore more likely to take premature profits or, worse, run losses. Traders need to understand what exits are available to them and know how to create an exit strategy that will help minimize losses and lock in profits. There are obviously only two ways you can get out of a trade: by taking a loss or by making a gain.
During trading discussions traders often talk of which currency to get into, but rarely do they speak about how or when to exit. Exiting from a trade is arguably more important than the entry, as the exit is what determines the profit. By learning multiple methods for exiting a trade the trader positions them self for potentially locking in greater returns. There are several useful methods for exiting a position, all which are easy to execute and can be implemented into a trading plan.
One of the most logical ways to exit a trade relates to the strategy that caused you to put on the trade in the first place. It stands to reason that you already should have planned your exit in advance so if you entered on a moving average crossover, for example, it’s usually best to exit on the opposite crossover. Likewise, if you bought on a breakout you should probably sell when the price breaks down. At the very least you should have some criteria laid out in advance for exiting a trade.
An aggressive advancing Stop Loss is suitable for traders that have jumped into a momentum based trade that won't last for very long. These kinds of trades include break outs and news trading. Volatility is high shortly after these events but often acts like a flash fire. It's there and then disappears in short order. Get in on the right side and you can ride that momentum to profit. The key to collecting profit from these kinds of movements is leaving enough room to breathe while protecting each pip you gain.
While it is expected that every successful trader will achieve a degree of emotional control and confidence, the pressures of trade timing are often so severe for many beginners that the process that leads to a calm and patient attitude to trading never has a chance to develop. To avoid this problem, the role of trade timing must be minimized, at least at the beginning of a trader’s career. And this can only be achieved if the size of the position is built up along with the trader’s confidence in it, and stop-loss orders are created where the closing of the position may result in gains.