How to Get Out of a Bad Trade

When trading forex you will almost definitely find yourself in a bad trade more than once. This is something that you will just have to accept because we all have done it. The forex market is somewhat predictable at times but there are other times where it may do the exact opposite of what you were looking for.

So, one of the most important things that you can know is how to get yourself out of a bad trade situation. This is a time where you will want to have exit strategies in order to salvage anything that you can. You will first want to plan these out in advance and be very careful in how you plan them. They may end up saving you a lot of lost money.

Planning how you are going to exit a bad trade is one of the most vital parts on trading plan that you can have. Exit strategies are more important that entries, unless you are going to end up scalping. When planning on how to exit, you will have the choice between many different trading techniques.

Proven Exit Strategies

First of all you can use trailing stops, which help in securing the profits while letting the trade run further. While using these trailing stops, you go on tracking the positive movement of the trade, and once it moves in the opposite direction, you exit the trade. Stops should never be changed back because you would not be securing your profits anymore.

Another one of the more trusted exit strategies being used is to place a profit target. In this you exit the trade as a whole or scale out your position in several installments. To give an example; if your money management rule allows you to take 3 lots, you break the position in three parts. You open a trade in EUR/USD at 1.2600 with a 30-pip stop. When the trade is 30 pips into profits, you close one of the lots and move the stops on the other two positions to breakeven.

This exit strategy takes the fear out of the picture and decreases the risk of drawdowns of your system, while at the same time allowing you to profit more from a single position. This is just one of many different exit strategies that can be used in order to get out of a bad trade.

When you have open orders at news time, it might preferable to close a trade before the trailing stops get hit. This is because big whipsaws could stop you out anyway with much less profit. This usually happens when the result of economic releases is quite different from what was expected. Also keep a close eye on this when institutional representatives make public announcements.

The last stop-loss strategy that we are going to mention is using the nearest support or resistance by examining the charts and noticing where the price has bounced many times and reversed. Most of the times previous highs or lows, pivots and Fibonacci levels are safe. You will usually want to place the stops around 1 or 2 percent away from the support or resistance.

What to Do Now?

Now that you know some of the most proven exit strategies for getting out of bad trades, you will want to develop one for your own use. It is very important to know these strategies and be able to use them in case you find yourself in the middle of a bad trade. These strategies can end up saving you a lot of money.

When running your forex trading like a business, this is just one of the mindsets that you will have. You realize how important money management is and how vital it can be to have a good exit strategy ready to use. Remember to plan ahead and no matter what happens, don't panic. By planning ahead you can avoid panic and make good logical decisions in times of bad trades.