How to Know When to Close a Trade


One of the things that many forex traders struggle with is when to close a profitable position. Often, they let emotion take hold, either closing out a position when they shouldn’t because they are scared, or holding on for more profits because of greed and losing everything in the process. It’s important to remember that you should never base a decision on anything but logic – but that can be hard to remember in the heat of the moment.

Having a huge profit on an open position is a good feeling, but your decision on what to do next shouldn’t take into account how much profit you have made already – don’t count your money and use this as the basis of your decision. Instead, ask yourself whether you really believe that your trade will continue to move in the right direction based on real market signals.

For instance, if you are in a strongly trending market, then it often makes sense to keep your position open until there is a clear signal to exit. For instance, if you see new highs being made on a daily basis in an uptrend, then the best thing to do is to keep your position open and limit your risk by using a trailing stop. Keep your stop slightly below the previous day’s low and let the trade run until the market closes your trade for you. Alternatively, simply set your stop to track the 8 day EMA – this will keep your stop at a reasonable level below the current price until the trend reverses.

However, if you do this, keep a lookout for opposing price action. A strong signal such as a large bearish pin bar in a rising market is a signal for you to take your profits. Similarly, keep a lookout for support and resistance levels – if you have already made significant profits, there is no reason to take risks. Even if you think you see a breakout signal as the level approaches, remember that many breakout signals are false. It’s often better to take your profits rather than betting that a trend will continue through a support or resistance level.

On the other hand, price action can also be a good indicator that you should stay in the market. Again, if you are riding a trend and it starts to flatten out, you may be tempted to exit – and perhaps you should. However, if you see a strong pin bar that reaffirms the trend, or any other supporting price action, then consider staying in the market. Again, make sure that you have your risk management strategy in place using trailing stops, but don’t exit the market by yourself when all of the signals are pointing in the right direction – let the market decide.

Editors’ Picks

EUR/USD: Minor support comes at 1.1060

EUR/USD: Minor support comes at 1.1060

EUR/USD climbed to the 1.1290 region at one point on Monday, though it later gave back part of those gains as the Greenback attempted to recover from its sharp decline, with investors continuing to digest Moody’s downgrade of the US credit rating on Friday.

GBP/USD surrenders some gains, returns to 1.3340

GBP/USD surrenders some gains, returns to 1.3340

GBP/USD continues to shed ground following earlier tops above the 1.3400 mark on Monday, approaching the 1.3340 zone following a gradual recovery in the Greenback as investors continue to assess Moody’s decision to downgrade the US credit rating.

USD/JPY tumbles below 145.00 as Moody’s downgrade weighs on the US Dollar

USD/JPY tumbles below 145.00 as Moody’s downgrade weighs on the US Dollar

Japanese Yen extends winning streak to five consecutive days against the US Dollar amid risk-off flows. Moody’s cuts US credit rating, weighing heavily in the US Dollar with the DXY index heading to 100.00. BoJ signals more rate hikes if recovery stays on track.


Editors’ Picks

AUD/USD: Further gains need to clear 0.6460

AUD/USD: Further gains need to clear 0.6460

 

AUD/USD reversed three consecutive daily pullbacks in quite auspicious start to the week, regaining the 0.6400 barrier and putting its critical 200-day SMA near 0.6460 to the test on the back of the intense and renewed selling bias hurting the US Dollar.

EUR/USD: Minor support comes at 1.1060

EUR/USD: Minor support comes at 1.1060

EUR/USD climbed to the 1.1290 region at one point on Monday, though it later gave back part of those gains as the Greenback attempted to recover from its sharp decline, with investors continuing to digest Moody’s downgrade of the US credit rating on Friday.

Gold looks sidelined around $3,230

Gold looks sidelined around $3,230

Gold appears to have entered a range-bound phase around the $3,230 mark per troy ounce at the start of the week, as investors turned to safe-haven assets following Moody’s downgrade of the US government’s credit rating and renewed trade tensions.

Crypto products post $785 million of inflows as Strategy scoops up 7,390 Bitcoin

Crypto products post $785 million of inflows as Strategy scoops up 7,390 Bitcoin

Crypto products recorded a fifth straight week of inflows last week, adding $785 million and lifting its cumulative inflows in 2025 to $7.5 billion, according to CoinShares' weekly report on Monday.

China April slowdown shows the impact of economic uncertainty

China April slowdown shows the impact of economic uncertainty

Trade war uncertainty is denting Chinese confidence, resulting in slower economic activity in April. Retail sales and fixed-asset investment both underperformed forecasts amid heightened caution. Yet the impact on manufacturing was less than feared.

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