Forex Strategies and Tips

It's All About The Exit

Making money in trading has everything to do with how you exit.

There are two fundamental approaches that we use: Active or Passive.

Passive Plans mean you set your Stop Loss and Take Profit targets as you enter your trade... and you leave them in place until you are either stopped out or you take profit.  You don't mess with them. Set and Forget.

Active Plans also have you set your Stop Loss as you enter your trade (always do this!) but as the trade develops you may move your stop loss into more favorable positions.

There are times when we're up for an active approach and other times where we need the greater ease of a passive approach, but both options can work great.  The choice is really about your psychology and emotions.  Neither way is always better than the other, so choose based on which feels like a better fit for you personally.

There are also some strategies that are better suited to one approach or the other, and you can see if that is the case for you through the method we outline below.

Plan Your Exit Before You Enter

Exits can be much harder to master in trading than entries.  When you are waiting to enter the market, you don't have anything at stake yet.

But the minute you pull the trigger and enter the market things change.  Your emotions kick in and put you in a state of panic.  It takes years of trading to develop the equanimity to be calm while in a trade.

The best way around this inner turmoil is to have a clear exit plan before you begin – a plan you have tested very well and are confident about.

No exit is always going to give you the best results possible, but you should settle on one that works reasonably well most of the time.

How To Compare Exit Plans

Because anything can happen with an individual trade – you can't really learn much from looking at 1 trade, 2 trades or even a handful of trades. You need to look at a large sample of trades all together. Then you put them into groups and compare the groups.

You can do this in a spreadsheet of course, but we make it much easier to do in the Trade Log.  Here's one approach:

① Begin by creating a 'custom parameter' with options.  When you create an option parameter in the Trade Log, you then get a dropdown menu with these choices for each trade you input, so it's easy to use.  Come up with names for each style of exit you are considering.

② Next create additional custom parameters for each one of your exit ideas. These new parameters will be 'number' style parameters.

When you now input your trades you will have several new input boxes.  In this example we're using 5 different exits we want to compare, so we'll have 6 new entries - like this:

③ When you enter each new trade, take a few extra minutes to look at what the profit or loss would have been for each different style of exit you're considering.  Enter that value into each box on the Trade Input tab.

How do you get that information?

When you're actively in a trade, many platforms (such as MT4) give you a crosshair or cursor you can use to drag to the price you're considering for an exit and see what it would give you.

But the placement of some exits isn't known in advance - only when the trade is done.  So you can use the Trade Plan tab of the Advanced Calculator to see what the profit would have been for each price level you're looking at (or if you're platform didn't offer that ability).

④ Once you have this info filled in for many of your trades, you can then step back and get a comparison by going to the Summary tab of the Trade Log.  There you'll find a table listing each exit option, that automatically updates as you add new trades to your data set.  Now you'll be able to see at a glance which of your exit plans is the best for you overall.

The More... The Better

Any analysis is better if you have a large number of trades you are comparing.

If you just look at a small handful of trades, you can't really know:
– is a particular exit really better than the others?   or... 
– is what I'm seeing just random results?

But when you start putting in 20, 30, 100 trades into your Trade Log – the results you see start to become really significant.

Yes, it takes work.  But become a master at anything takes work.  And the payoff for doing this will really help you nail down your exit plan with great precision.

Any analysis is better if you have a large number of trades you are comparing.

If you just look at a small handful of trades, you can't really know:
– is a particular exit really better than the others?   or... 
– is what I'm seeing just random results?

But when you start putting in 20, 30, 100 trades into your Trade Log – the results you see start to become really significant.

Yes, it takes work.  But become a master at anything takes work.  And the payoff for doing this will really help you nail down your exit plan with great precision.

This Is How To Compare Anything

This technique for looking at What If Scenarios works great for many other aspects of your trading too,

Consider setting up a few different approaches to where you put your stop loss and see how well each performs.

Perhaps you have one general strategy you like, but to enter a trade you use various entry triggers or candle patterns to tell you 'now'.  You can compare them in this same way too.

You may be using a fixed take profit to exit your trades; compare which risk-to-reward ratio is actually the best net profit for you, or maybe a fixed number  of pips works out best.