One of the things that many forex traders struggle with is when to close a profitable position. Often, they let emotion take hold, either closing out a position when they shouldn’t because they are scared, or holding on for more profits because of greed and losing everything in the process. It’s important to remember that you should never base a decision on anything but logic – but that can be hard to remember in the heat of the moment.
Having a huge profit on an open position is a good feeling, but your decision on what to do next shouldn’t take into account how much profit you have made already – don’t count your money and use this as the basis of your decision. Instead, ask yourself whether you really believe that your trade will continue to move in the right direction based on real market signals.
For instance, if you are in a strongly trending market, then it often makes sense to keep your position open until there is a clear signal to exit. For instance, if you see new highs being made on a daily basis in an uptrend, then the best thing to do is to keep your position open and limit your risk by using a trailing stop. Keep your stop slightly below the previous day’s low and let the trade run until the market closes your trade for you. Alternatively, simply set your stop to track the 8 day EMA – this will keep your stop at a reasonable level below the current price until the trend reverses.
However, if you do this, keep a lookout for opposing price action. A strong signal such as a large bearish pin bar in a rising market is a signal for you to take your profits. Similarly, keep a lookout for support and resistance levels – if you have already made significant profits, there is no reason to take risks. Even if you think you see a breakout signal as the level approaches, remember that many breakout signals are false. It’s often better to take your profits rather than betting that a trend will continue through a support or resistance level.
On the other hand, price action can also be a good indicator that you should stay in the market. Again, if you are riding a trend and it starts to flatten out, you may be tempted to exit – and perhaps you should. However, if you see a strong pin bar that reaffirms the trend, or any other supporting price action, then consider staying in the market. Again, make sure that you have your risk management strategy in place using trailing stops, but don’t exit the market by yourself when all of the signals are pointing in the right direction – let the market decide.
Having a huge profit on an open position is a good feeling, but your decision on what to do next shouldn’t take into account how much profit you have made already – don’t count your money and use this as the basis of your decision. Instead, ask yourself whether you really believe that your trade will continue to move in the right direction based on real market signals.
For instance, if you are in a strongly trending market, then it often makes sense to keep your position open until there is a clear signal to exit. For instance, if you see new highs being made on a daily basis in an uptrend, then the best thing to do is to keep your position open and limit your risk by using a trailing stop. Keep your stop slightly below the previous day’s low and let the trade run until the market closes your trade for you. Alternatively, simply set your stop to track the 8 day EMA – this will keep your stop at a reasonable level below the current price until the trend reverses.
However, if you do this, keep a lookout for opposing price action. A strong signal such as a large bearish pin bar in a rising market is a signal for you to take your profits. Similarly, keep a lookout for support and resistance levels – if you have already made significant profits, there is no reason to take risks. Even if you think you see a breakout signal as the level approaches, remember that many breakout signals are false. It’s often better to take your profits rather than betting that a trend will continue through a support or resistance level.
On the other hand, price action can also be a good indicator that you should stay in the market. Again, if you are riding a trend and it starts to flatten out, you may be tempted to exit – and perhaps you should. However, if you see a strong pin bar that reaffirms the trend, or any other supporting price action, then consider staying in the market. Again, make sure that you have your risk management strategy in place using trailing stops, but don’t exit the market by yourself when all of the signals are pointing in the right direction – let the market decide.
Editors’ Picks
EUR/USD: US Dollar to remain pressured until uncertainty fog dissipates
Unimpressive European Central Bank left monetary policy unchanged for the fifth consecutive meeting. The United States first-tier employment and inflation data is scheduled for the second week of February. EUR/USD battles to remain afloat above 1.1800, sellers moving to the sidelines.
GBP/USD reclaims 1.3600 and above
GBP/USD reverses two straight days of losses, surpassing the key 1.3600 yardstick on Friday. Cable’s rebound comes as the Greenback slips away from two-week highs in response to some profit-taking mood and speculation of Fed rate cuts. In addition, hawkish comments from the BoE’s Pill are also collaborating with the quid’s improvement.
USD/JPY gathers strength to near 157.50 as Takaichi’s party wins snap elections
The USD/JPY pair attracts some buyers to around 157.45 during the early Asian session on Monday. The Japanese Yen weakens against the US Dollar after Japan’s ruling Liberal Democratic Party won an outright majority in Sunday’s lower house election, opening the door to more fiscal stimulus by Prime Minister Sanae Takaichi.
Editors’ Picks
USD/JPY gathers strength to near 157.50 as Takaichi’s party wins snap elections
The USD/JPY pair attracts some buyers to around 157.45 during the early Asian session on Monday. The Japanese Yen weakens against the US Dollar after Japan’s ruling Liberal Democratic Party won an outright majority in Sunday’s lower house election, opening the door to more fiscal stimulus by Prime Minister Sanae Takaichi.
EUR/USD: US Dollar to remain pressured until uncertainty fog dissipates
Unimpressive European Central Bank left monetary policy unchanged for the fifth consecutive meeting. The United States first-tier employment and inflation data is scheduled for the second week of February. EUR/USD battles to remain afloat above 1.1800, sellers moving to the sidelines.
Gold: Volatility persists in commodity space
After losing more than 8% to end the previous week, Gold remained under heavy selling pressure on Monday and dropped toward $4,400. Although XAU/USD staged a decisive rebound afterward, it failed to stabilize above $5,000. The US economic calendar will feature Nonfarm Payrolls and Consumer Price Index data for January, which could influence the market pricing of the Federal Reserve’s policy outlook and impact Gold’s performance.
Crypto Today: Bitcoin, Ethereum, XRP rebound amid risk-off, $2.6 billion liquidation wave
US NFP and CPI data awaited after Warsh’s nomination as Fed chief. Yen traders lock gaze on Sunday’s snap election. UK and Eurozone Q4 GDP data also on the agenda. China CPI and PPI could reveal more weakness in domestic demand.
Three scenarios for Japanese Yen ahead of snap election Premium
The latest polls point to a dominant win for the ruling bloc at the upcoming Japanese snap election. The larger Sanae Takaichi’s mandate, the more investors fear faster implementation of tax cuts and spending plans.
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