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The Importance of Entry and Exit Points in Forex
Written by: PaxForex analytics dept - Friday, 10 November 2017 0 comments
Forex trading is associated with buying or selling a currency pair in order to profit from the difference between the entry and exit price. Most traders spend more time planning and contemplating entry points than exit points. While proper trade entries are important, most seasoned trading veterans agree that trading success relies on how a trader exits their trades. Trading without the mastery of trade timing and the knowledge of certain good trigger points, both based on experience, will never bring us any profits.
If money management is one half of trading, determination of entry/exit points constitutes the other half. No amount of successful analysis will be useful if we can’t determine good trigger points for our trades. Even if we know that the value of a currency pair will appreciate in the future, unless we have a clear conception of when that appreciation will occur, and where it will end, our knowledge is unlikely to bring us great profits.
Each trade is like a draw from a lucky dip or a spin on the wheel of fortune. The better your entries and exits, the more winners in the draw, and the easier it will be for your forex trading system to meet your objectives. Your goal for your entries and exits is to add as many winning tickets into the draw as possible – or to add in tickets that when you do pull them ensure you win the jackpot. When
you internalize this concept, you can start to see how entries and exits fit into the bigger picture of your forex trading system.
The difference between profits and losses is your entry/exit strategy. For example, you might estimate that the value of a currency pair will appreciate, but if you hesitate to enter into a trade, you limit your potential profits. Typically, finding an entry point starts with solid technical analysis and a plan of action. You want to enter trades for a specific analytical reason – i.e. you have isolated a clear trend – and you want to have a plan for potential entry and exit points.
A number of traders fail to collect pips after entering into profitable trades because they do not have a consistent plan on how to keep their profits from disappearing back into the market. Every trader should have specific exit criteria drawn up in their Trading Strategy that will best compliment their trading technique and let them build their profit. If you find your profits slipping back into the markets after you have made meaningful gains, it may be time to take a closer look at your money management and exit strategy criteria. Knowing how to keep what you earn is arguably more important than any other aspect of your forex trading.