There is not such an animal called the perfect exit strategy; however there are exit strategies that will enable you to exit in strength and reduce the risk that the trade will turn against you if you are in a winning position or enable you to cover into your weak point and prevent further loss if you are in a losing strategy.
How do you exit a successful trade? Do you let the trade run and run so your profits get bigger and bigger or do you exit the trade when you feel that you have enough profit? The answer is no to both of those questions.
The problem is that you cannot guarantee that your profit will increase if you stay with the trade, it might very well decrease and maybe if you are not careful it might disappear altogether. The mind-set of a successful trader is that he values a locked in profit more than he value the possibility of a higher profit. This is probably the reason that traders are inclined to cash in their profits too soon.
One exit strategy to consider is to use trailing stops wisely. By carefully placing your trailing stop and continually adjusting it behind your trade you can stay with the trade and accumulate more profits, however if the trade turns against you and you have set your trailing stop to ensure that a certain percentage of your profit is protected when the stop is hit and the trade exited you will have locked your profit.
Another exit strategy is to use your technical analysis tools and forex charts to exit a trade at the appropriate time. If you feel comfortable with moving average indictors you could use a 5 period moving average and a two period moving average. When the shorter period moving average crosses above the 5 period moving average and you have a short position you exit the trade. Likewise, you exit a long position when the two period moving average crosses below the 5 period moving average. You can use bigger time frames but they are not as accurate as the short tie frame. However, a longer time frame will give you a greater profit gain per trade.
An equally good exit strategy is to use the 2 period RSI. When you are in a long position and the RSI crosses below the 70 line its time to exit the trade. If you are in a short position you exit the trade when the RSI crosses above the 30 line. The same logic applies as with the short and long period moving averages, a short period RSI might trigger an exit from your trade too soon and your cumulative profits will be less than if you used a longer period RSI.
The hardest exit strategy is to exit a trade which is losing. This is the trade where the character of a forex trader shows its face. There are two types of traders, those who are successful and those who are losing traders. Successful traders have one thing in common in that they exit losing trades early and cut their losses. They never think about letting trades run in the hope that the market will turn around in their favor. The unsuccessful traders however, live in hope that one day the market will turn in their favor.
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