Executing the trades is easy but things get messy when people look for the exit point. But a balanced trading strategy must have a perfect exit strategy. Before the trade is executed the trader should know when to close the trade and make some serious profit. At times, you have to close the trade due to sudden global news. Force closing the trades at the right time requires a strong knowledge of fundamental and technical sections. This article is going to act as your guideline and you will be able to trade like the pro after reading this article.
Support and resistance level
Support and resistance level are the two most important element in trading. The buyers are looking for a bullish signal on the critical demand zone. On the contrary, the sellers are looking for short signals at the critical resistance. With some hard work, they learn to find good quality trades at this level. But do you think this is going to save your investment and make you successful? You have to learn to use these key levels to identify the potential stop loss (SL) and take profit (TP). The deeper you will get, the better you will understand. Many people use the concept of minor support and resistance level to determine the trailing stops. Though it might be cloudy for the naïve traders but with some basic guidelines, you can easily master this trading technique.
Relying on the fundamental factors
The fundamental factors also play a vital role in determining the SL and TP. For example, assume you have a long trade open in the USDSGD pair. During the FOMC meeting minutes, the FED officials gave a clear clue regarding their next rate hike. So, it’s better to stick to the trade since the market will rally higher. Having strong knowledge of the fundamental factors allows you to control the trade executed in your Forex trading account. But still, this requires a perfect understanding of the news. The economic news might be deceptive and the new traders often fall into the bulls and bear trap. To avoid such massive confusion, you can start using the practice account and develop your skill. Once you have the skills to analyze the complex price movement, the placement of the SL and TP will be easier.
Use the Fibonacci retracement tool
Determining the perfect TP and SL levels are fairly easy when you use the Fibonacci retracement tools. Most of the retail traders get confused that the Fibonacci trading system is designed for naive traders. But if you start going deep, you will realize the fact, the Fibonacci trading strategy is most designed for the high-end professionals who knows the perfect way to place the trade. The important levels can be used to predict the price movement with a high level of accuracy. Though this will take some time, having fair knowledge of the key swings will eliminate most of the hassles.
The risk to reward ratio
The risk to reward ratio should be considered during the placement of the SL and TP. Those who want to trade with 1:1 risk to reward ratio should never trade Forex. Finding the SL and TP is more like an art. You have to use a high risk to reward ratio so that you can cover up the loss with a few minor tricks. Though this is a very simple process, sadly the new traders don’t know how to manage these factors. Trading can be a challenging task. But once you start to use the concept of RR or risk to reward ratio, you don’t have to face complexities in recovering the loss. Try to think like smart traders in the Forex market and you will have zero issues with your strategy. And don’t place random SL and TP as it ruins your career.