As a trader, you might know that a trade execution takes place in two phases. The first one is when a trader enters the deal and the second phase is when a trader decides to close the deal. Now both the entry and exit points are crucial in the trading life of an investor.
A person will only enter a trade when he finds that conditions are favourable and compatible with his investment. He decides to make his investment where he thinks is the perfect opportunity to make some money without facing any loss. Again, he cannot hold on to his position forever. This is because he can only gain his profit when he successfully exits his trades. If anyone fails to maintain these levels then they may come across some dreadful trading conditions.
Let’s cite a simple example to make things more clear. Let’s say you bought a stock when the price was high and sell the stocks at a lower price. Then, you are facing a loss. That’s why, to avoid such catastrophes, finding the best entry and exit points is very important. Now, most of the participants in this market are prepared to begin a transaction. Well, that is good news! But the sad part is that despite their good entry, they fail to exit and close the deals properly. This is due to a malfunction in the executive methodology of investors and proves to be detrimental to the investment at times.
For this reason, to avoid such a major issue, you need to learn some exit strategies.
Fix your loss level
At times, you will face some losses while making deals and contracts. But you need to keep in mind that your losses are within certain limits and don’t go out of your control. The most important way to guarantee the security of your investment is to keep your losses small and to not let them get too big for you to handle. When your losses are marginal, you can easily overcome them in upcoming trades. But a huge loss can even confiscate your previous profits and may cause you to go into debt.
Before you say yes to trading, you need to make sure that you are fixing a limit to your losses and set a proper stop-loss to prevent your losses from getting big. This will help you to know when to exit your trades without making any big loss. Always open the trades with great broker like Saxo as they improve your trading accuracy by providing better tools.
Set a profit level
Just like setting a loss limit, you also need to make space for fixing a profit margin. Now, why is it important to set a profit level? Everyone is aware that the investment market is highly volatile and can change at any moment. There’s no guarantee that it will continue to rise or fall until it hit your desired profit target. So, if you don’t set a profit level, you might be losing money from very profitable trades. By fixing your gain level, you will be aware when to call off a deal. Experienced uses the simple concept of stop loss and take profit determine 1:2 better risk to reward ratio. Once trades are taken with high risk to reward ratio, it becomes easier for the retail traders manage their risk profile.
It is one of the most effective ways to analyse the best exit points for your deals. When you follow the trendlines, you become aware of the market movement of the financial instrument you are investing in and make sure to plan your trades similarly. When your deals follow the trend, you have fewer chances of being off target and become confident about when to exit an existing deal.
Over time, you will find more complex situations in whichto invest your capital. But when you are sure of what you are doing, you can stay on the right track until the very end of the deal.