Nonetheless, traders must learn how to determine entry and exit points in forex to preserve profits and avoid excessive losses, like using forex exit indicators.
Let’s explore how traders use forex exit indicators.
Both RSI and Stochastic Oscillator charts have a scale from 0 to 100. Levels below 30 are considered oversold; levels over 70 mean the market is overvalued. The oversold and overbought values for the Stochastic Oscillator are 20 and 80, respectively. You can use these scales to determine your exit signal.
If you opened a long position when the RSI was at 30, 70 would be your exit signal. For the Stochastic Oscillator, 80 would be the exit point. You can reverse the exit line for a short trade, with 20 or 30 as the levels at which you should close your position.
If you use Candlestick or other bar charts, you will look for the market to close below the moving average.
It is also possible to use two moving averages: one that measures a shorter timeframe and one that measures a longer one. For example, you could choose 5-period and 20-period moving averages. When the 5-period line crosses above the 20-period line, it is a buy signal. You would then wait for the 20-period line to cross back over the 5-period one to exit your trade.
By calculating the most recent market volatility, traders manually calculate where their stop should be. For instance, using round numbers, if a buy signal was generated when the security was at ten and the ATR was then at two, the stop would be placed somewhere below 8 (being 10-2). On a short trade, if a sell signal was generated at ten and the ATR was again at two, the stop would be placed above 12.
In short trades, you profit when the market goes down. When you enter a short position, you technically take the "sell" side of a trade. In other words, you enter the position by selling. Therefore, when it is time to close the trade, you will exit the position by taking the buy side of the trade. In essence, you exit by buying.
Exit buy signals may include the RSI reaching an oversold level (30 or below) or a long-term moving average moving below a shorter-term MA.
You can also use indicators that measure the normal price range for an asset. For example, if you enter a trade using Bollinger Bands and the market closes below the lower band, you may consider it a signal to exit the trade for a loss. Support and resistance levels may also provide lines to place your stop-loss orders or manually exit the trade for a loss.