These 5 methods can help you catch the best time to close positions
2024-05-29
In the trading market, as the saying goes, the one who knows how to buy is an apprentice, and the one who knows how to sell is the master. There are countless ways to enter the market, such as technical breakthroughs, pullbacks, indicator combinations, or fundamental analysis. However, professional traders will focus more on exit strategies because exiting is the real challenge in trading. The timing of closing positions will directly determine the trader's profit or loss situation. Below are several practical methods for closing positions and precautions to take:
1. Support and resistance closing method in price trend
Many traders often use stop-loss/take-profit to close positions, so traders' accurate judgment and analysis of resistance and support levels are important references for grasping the timing of closing positions. When using this method to set take-profit and stop-loss, the risk-reward ratio should also be considered.
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When we short a currency, we need to observe the previous price trend and look for a stage high as the stop-loss price. The reason is that this stage high may play the role of resistance in the future trend. If the exchange rate can be strong enough to reach a new high again, shorting loses its meaning, and it can be closed as soon as possible.
In addition, we also need to use stop-loss to set take-profit. If the stop-loss is set at 100 basis points, in order to achieve a risk-reward ratio of 1:2, the profit target should be set at 200 basis points.
2. High-sell closing method
The so-called "high-sell method" refers to determining a reasonable target price when buying a currency, and then closing the position immediately when the currency reaches this target price. As for the setting of the target price, we can use analysis tools such as the golden section line, moving average, and pattern, combining fundamental and technical analysis.
Traders should first master the method of fundamental analysis of the currency's country's economy, and the set target must be higher than its current market price. Spend more time studying the correct market trend, and if it is consistent with the trend, the profit may be considerable.
3. Secondary fixed closing methodThe "Second Top Flat Position Closing Method" refers to the process in trading where we do not need to set a target price for closing the position in advance. We can hold the position until the market exchange rate shows a second sign of peaking, at which point we can sell and close the position. Technical analysis can also be used to judge the signs of peaking in the exchange rate, making judgments from the form and trend of the market exchange rate trend, and analyzing the establishment and formation of the medium-term head through double tops, head and shoulders tops, and triple tops in the trend, and then decisively closing the position.
4. Moving Average (MA) Tracking Stop Loss Position Closing Method
Traders often use moving averages to analyze the current market trend. If the price is above the moving average, then we only look for opportunities to go long; if the price is below the moving average, then we only look for opportunities to go short. However, some traders also use moving averages to set stop losses. The core of this strategy is that if the exchange rate switches from one side of the moving average to the other, the market trend may change. Trend traders should close their positions in this situation.
As the trend develops, the points of the moving average will also change, and accordingly, traders need to adjust their stop loss points based on the changes in the moving average. If the market has risen by 30 basis points on the 100-day moving average after opening a position, then we will also raise the stop loss by 30 basis points, which also means that we have reduced the risk by 40%. However, the take-profit has always remained unchanged, which means that as the trend develops, our risk-reward ratio will become more and more favorable.
5. Volatility Range Setting Stop Loss/Take Profit Position Closing Method
This position closing strategy involves the ATR (Average True Range Indicator). The value of the ATR indicator represents the size of the market's volatility. By observing the size of the market's volatility, we set our stop loss/take profit. If the ATR value is large, the corresponding stop loss needs to be increased. Because in a market with violent fluctuations, a narrow stop loss is easily penetrated by market noise. Similarly, if the ATR value is small, there is no need to set a large stop loss.
The method of setting a stop loss using ATR is applicable to any time frame. It is important to remember that when using this position closing strategy, attention should be paid to setting the risk-reward ratio at 1:2, and there is no need to change after setting the stop loss and take-profit.
6. Summary
If the choice of entry timing is a test of the trader's analysis and judgment of the market, then closing the position is a test of the trader's trading skills and mentality. The most important thing in trading is to have trading discipline. Hesitation when it's time to close the position will only miss good opportunities. If the following situations occur in the trade, immediate action must be taken:
(1) During the trading process, if the market suddenly deviates from the direction we have determined and the trend is far more violent than its recent fluctuations, close the position immediately.Translate the following passage into English:
(2) If a short position (long position) enters a resistance (support) zone, but the market consolidates without reversing, then, close the position.
(3) If unable to observe the market for a period of time, either close all positions or ensure that there are stop-loss orders on all open positions.
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