Forex Exits

Let's firstly get an overall picture of what are the various types of exits that are used.

1. When you’re in a position, you usually have an initial stop, which may or may not be the same as your trailing stop, depending on the system that you’re trading. The purpose of the initial stop is to get you out of the trade, if the trade goes against the direction of the trade early on in the trade.

2. A breakeven stop may also be used. This is where your trailing stop loss is moved to the breakeven point (the price where if you exit, will be equal to your entry price). During volatile markets where currency prices may fluctuate enough to get you out too frequently at your trailing stop, if a breakeven stop is not used.

3. You may also have a take profit stop. This is when you exit the full position or half the position, when a target profit of “x” number of pips, or some other criteria if the trading system has been reached.

4. The trailing stop, as a part of your forex exit strategy, is a stop that moves in the direction of the trade, which is up for a long trade and down for a short trade. An ideal stop is one that allows enough "room to move" and hence allows the profits to run, and of course eventually gets you out when the trade does turn against you.

5. Finally, a trade may be exited before a major economic announcement, because during such an announcement, there may be a temporary but very large increase in volatility that may cause you to be stopped out at your trailing stop.

So really, there are 5 common types of stops in all: initial, trailing, breakeven, take profit stops, and stops due to fundamental events in the market such as announcement.

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