An exit strategy refers to a trader’s predetermined method of closing an open trade. A trader’s exit strategy includes exit points that vary according to the trading strategy being used. An exit strategy is usually expressed as steps or rules that a trader follows to close out a trade. A trader should always have a plan for both entering and exiting a trade.
An exit strategy can be general or trade specific. A general exit strategy may be as simple as taking profits on any trade that exceeds 20 pips and placing a stop loss at 10 pips. A trade specific strategy depends on the type of trader. A news trader may use a time period as a rule for closing a position (i.e. 1 hour before a release). A technical trader may close a position due to a change in the strength or direction of a chart formation. A fundamental trader may close a position based on changes in the underlying economic health of the nations making up a currency pair. Basically, there are as many exit strategies as there are trading strategies.
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