Managing your entry and exit points
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To start with, it is supposed that before you enter an open position , you should have beforehand drawn out a trading plan with a well mapped out strategy which should provide for points where you should place potential entry and exit points; all this prior to placing the order for the trade. Surely there is space for modification as you could for sure change your plan of action as the trade goes on by modifying your order in your MT4 platform, but the point I am drawing out here is that you should never enter any trade when you have not prepared a well-thought-out and tested trading plan. Let us go into trading plan proper, because it is essential that exit and entry points are strategically placed as the pip difference between entry and exit values whether negative or positive determine whether the trader is losing or winning as the case may be. If we take this to technical analysis,we see that most traders find their exit and entry points relying on some type of support or resistance levels in a market. Let me put in an example here, during the time of the Eurozone crisis of the Greek debt, the EURUSD was crashing down in the forex market, many traders would feel prices are going down close to a bottom but then I won't go long on an EURUSD pair just because I feel it is closer to a bottom. It is safer for me to notice some strength in the market. Because of this I will patiently wait for the EURUSD currency pair to push up through a resistance level and start building an uptrend. So should I choose to go long, I will now place my sell stop a little below a support level which is not much below the market. And so if the trend does not build up as expected and the market happens to turn back south, I will be stopped out for a loss, but the loss wouldn't be too big.
Another means to enter a market that is trending (or better still just beginning to trend) is to wait and look out for a minor pullback in an uptrend or look out for an upside correction in a downtrend. From what I have seen in the forex market, market prices don't usually go straight down or straight up, and there are little corrections within a trend which will provide you with good entry points. The major point here is to try to know whether it is truly just a correction and not where the trend ends. If it comes to deciding where to exit the market should you be losing money, I will give you a simple clue, but don't doubt its power: When you enter the trade, and you place a sell stop below the market price if you took a long position (buy stop if you take the long position), you will sense it immediately how much money you could lose approximately in any given trade. Do not forget to use stops when trading. It doesn't mean you are being too careful, as sometimes your stop might get triggered only for prices to reverse and move in your expected direction but then most of the times, prices don't and at the end, using stops in your trades does you more good than bad. In addition to this, by using tighter stops, I will consequently avoid a situation in which I lose reasonable amount of money because in the end it is like I am fighting against the market, "hoping and believing" it will soon turn in my preferred direction.
Now we have talked about being protective using stop loss, how
about the situation where you've got a winning trade going and it is already bringing in good profits? Then your best choice is to use "trailing stops." For example, if you're taking a long position on a market and it reaches your first upside objective, but now you have the feeling that an upside might occur so you are quite unwilling to exit your trade. You will now put in a sell stop at a chosen level, placing it at a point below the market which would keep you in the winning trade. But if the market prices go down, and then your stop is triggered, you will still have made a good and nice profit.
I wouldn't precisely tell you at what percentage below the market (which would be above the market if you are in the short position); you should set stops or trailing stops, this is due to the fact that all markets show different features at different times, and it is normal for two of us to have have differing opinion on how much money you could lose. However, here is a general instruction which could well serve as the rule of thumb; it is to place stops and trailing stops at a point which is just below a support level which at the same time is not too much below the market. ( And then If you're short, you should place the buy stops at points which are not too far above the market.)