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.
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 weakens to near 1.1900 as traders eye US data
EUR/USD eases to near 1.1900 in Tuesday's European trading hours, snapping the two-day winning streak. Markets turn cautious, lifting the haven demand for the US Dollar ahead of the release of key US economic data, including Retail Sales and ADP Employment Change 4-week average.
GBP/USD stays in the red below 1.3700 on renewed USD demand
GBP/USD trades on a weaker note below 1.3700 in the European session on Tuesday. The pair faces challenges due to renewed US Dollar demand, UK political risks and rising expectations of a March Bank of England rate cut. The immediate focus is now on the US Retail Sales data.
USD/JPY drops toward 155.00 as focus shifts to US data
USD/JPY meets fresh supply and inches closer toward 155.00 in the Asian session on Tuesday. The Japanese Yen holds the upper hand over the US Dollar after Japanese Prime Minister Sanae Takaichi led the ruling Liberal Democratic Party to a historic landslide win and on intervention talks. Traders brace for key US economic data that could offer more clues on the Federal Reserve's monetary policy.
Editors’ Picks
EUR/USD weakens to near 1.1900 as traders eye US data
EUR/USD eases to near 1.1900 in Tuesday's European trading hours, snapping the two-day winning streak. Markets turn cautious, lifting the haven demand for the US Dollar ahead of the release of key US economic data, including Retail Sales and ADP Employment Change 4-week average.
GBP/USD stays in the red below 1.3700 on renewed USD demand
GBP/USD trades on a weaker note below 1.3700 in the European session on Tuesday. The pair faces challenges due to renewed US Dollar demand, UK political risks and rising expectations of a March Bank of England rate cut. The immediate focus is now on the US Retail Sales data.
Gold sticks to modest losses above $5,000 ahead of US data
Gold sticks to modest intraday losses through the first half of the European session, though it holds comfortably above the $5,000 psychological mark and the daily swing low. The outcome of Japan's snap election on Sunday removes political uncertainty, which along with signs of easing tensions in the Middle East, remains supportive of the upbeat market mood. This turns out to be a key factor exerting downward pressure on the safe-haven precious metal.
Bitcoin Cash trades lower, risks dead-cat bounce amid bearish signals
Bitcoin Cash trades in the red below $522 at the time of writing on Tuesday, after multiple rejections at key resistance. BCH’s derivatives and on-chain indicators point to growing bearish sentiment and raise the risk of a dead-cat bounce toward lower support levels.
Follow the money, what USD/JPY in Tokyo is really telling you
Over the past two Tokyo sessions, this has not been a rate story. Not even close. Interest rate differentials have been spectators, not drivers. What has moved USD/JPY in local hours has been flow and flow alone.
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