Forex Exit Strategy - 4 Types of Exit Strategies

Whenever you enter into a Forex trade of any kind, the first thing you have to make sure is that you have your exit strategy planned out regardless of whether the trade ends up a winner or a loser. Knowing how to manage your money and trades is the single most important thing about trading the Forex market. Without an exit strategy, you're asking for trouble.

There are 4 types of exit strategies that you should know about and employ in your trades:

1. The Initial Stop (also known as a Stop Loss) is placed when you enter the trade. This stop is meant to limit your potential loss. This is the most important exit strategy there is. Never trade without an initial stop.

2. Take Profit Stop - You should always employ a Take Profit Stop. This indicates the maximum profit you plan on taking out of a trade. Even though you may see the market continue to go in your direction after you've exited the trade, having a Take Profit stop will make it unnecessary for you to constantly monitor the trade.

3. Trailing Stop - A Trailing Stop happens when your trade is winning and you want to change your initial stop to safeguard your profits. For instance, let's say you had an initial stop of 10 pips below entry price. Then, you find yourself 20 pips in profit and your Take Profit stop has not been activated yet. Now, you bring your stop to 10 pips below current price. This means that worse comes to worse, you will exit this trade with 10 pips in profit. The Trailing Stop travels with the current market price to help you secure more and more profits.

4. Breakeven stop - This is a type of Trailing Stop where you place a new stop at a price which will guarantee that in the worse case scenario you will not lose money on this trade. You have to remember to take into account the spread that you paid your broker.

Let's say you entered a trade at 1.4000 and your spread was 3 pip. Let's also say that the market price is now 1.4020. You can bring your stop to 1.4003 which means that if the market turns against you it will results in a breakeven trade at the worse.

These Forex exit strategies are something which you have to employ. They will help reduce risk and secure profit. They will make you more money.