One of the most difficult skills for Forex traders to master is entering and exiting trades. The challenge is to do this at the optimum points to maximise your profits. You might be a familiar with a few different techniques to do this. But for the moment, I would ask you to cast those aside. The purpose of this article is to explain how to enter and exit a trade like a professional. In fact, this is the way I enter and exit trades.
Caveat: Have You Mastered Fundamental Analysis?
Before we explore entering and exiting trades, we need to ensure you’re ready to implement this information. Specifically, it’s vital that you have mastered using fundamental analysis to determine price direction.
If you are struggling to correctly predict price direction – this article won’t help you become more profitable. Your first task is to practice using fundamental analysis. Once you can consistently use this methodology to determine future price direction, then come back to this article.
Remember, fundamental analysis is the methodology used by professional traders. It’s simply a means of interpreting world events. These events can be anything from economic data releases, elections, political speeches, natural disasters or acts of war/terrorism.
You just need to look at recent history to see how world events can move the markets in real-time. Brexit and the UK general election are excellent examples of this.
Defining Support & Resistance
If you have a strong track record in predicting price direction, it’s time to learn how to enter and exit trades. I want to explain how professional traders do this. Firstly, you need to be familiar with two trading terms: support and resistance.
In simple terms, support and resistance are key price levels of a currency pair. They indicate psychological barriers of the market as a whole. Let’s explore this in further detail (it’s actually very simple to understand).
A support level is simply the lowest price of any given currency pair over a particular timeframe. You can compare a support level to a psychological price floor. It’s why as a currency pair’s price approaches a support level, there’s usually an increase in the number of traders who buy (go long) on that pair.
Conversely, a resistance level is the highest price of any given currency pair over a particular timeframe. This can be compared to a psychological price ceiling. So when a currency pair’s price approaches a resistance level, there’s usually a flux of traders who sell (go short) on that currency pair.
When these levels are broken – i.e. price surpasses the floor or ceiling, it’s usually seen as a significant moment by market participants. Often, using fundamental analysis, you can identify a reason for support or resistance levels being broken.
Hopefully, you’ve noticed that support and resistance levels can be useful for identifying when to enter and exit trades. There are various ways of determining levels of support and resistance. But you don’t actually need technical indicators to identify these levels. You just need a simple price chart.
How I Enter & Exit Trades
Firstly, I want to emphasise that this method of entering and exiting trades is good for intraday trading. My preferred timeframes are 15 minutes or one hour. This is a useful setup for trading economic data releases or statements from central banks.
You need to be clear on the timeframes you use on your trading. If this is a new concept to you, I suggest you try 15 minutes or one hour.
Now, let’s take a look at how to enter and exit trades. I’ll explain steps for a long and short trade.
Entering & Exiting A Long Trade
Step 1: Determine the price direction for your currency pair using fundamental analysis. In this example, the currency pair is set to increase in price.
Step 2: Identify key support levels for your currency pair on a price chart. This is the lowest price over your chosen timeframe. I also use ‘double zero’ or ‘50’ levels as points of support – for example, if price hits 1.2400 or 1.2450.
Step 3: Enter the trade on the next pullback towards your identified support level.
Step 4: Set a take profit level just underneath the next resistance level in your chosen timeframe. This will either be the highest price you can see on your price chart, or a ‘double zero’ or ‘50’ level.
Entering & Exiting A Short Trade
Step 1: Determine the price direction for your currency pair using fundamental analysis. In this example, the currency pair is set to fall in price.
Step 2: Identify key resistance levels for your currency pair on a price chart. This is the highest price over your chosen timeframe. I also use ‘double zero’ or ‘50’ levels as points of resistance – for example, if price hits 1.3100 or 1.3150.
Step 3: Enter the trade on the next rally towards your identified resistance level.
Step 4: Set a take profit level just above the next support level in your chosen timeframe. This will either be the lowest price you can see on your price chart, or a ‘double zero’ or ‘50’ level.
I explain this entire approach in the video below.
How To Enter And Exit Trades (Like A Professional)
This is skill isn’t actually that complex. It just takes a little practice to perfect. Like with most things, the best approach is to try and keep your trading steps simple and clear. I would advise against clogging up your trading chart with too many widgets and technical indicators
Levels of support and resistance are simple concepts. You can actually spot them on price charts without using any charting tools. Perhaps try and implement the steps I’ve described above on a demo account. After you build up your confidence, you can then transfer what you’ve learned into a live market environment.
I hope you have found this article useful. If you have any questions, please feel free to leave them in the comments below. I’ll do my best to reply to as many as I can.