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Exit_by_Dissolution_of_Entry_Criteria

Exit by Dissolution of Entry Criteria

An often overlooked exit method presented in this review is to exit a position when the original entry criteria no longer exists. This is in particular practical when the forex trader uses technical indicator signals for entry.

Consider a trading strategy which is based on entering positions as volatility increases in an attempt to capture large quick moves. The forex trader may use average true range  forex analysis to assess the a volatility.  The figure below shows how the AUD/CAD volatility rises as a sell-off begins.

Exit_by_Dissolution_of_Entry_Criteria

The trader takes a short position in anticipation of quick profits, which quickly come. Among many potential exits from this position is to exit when volatility begins to retract. After all, if volatility retracts the original premise for the trade, the trade should be exited.

Finally, combination of the stop-loss methods is nearly endless. While one forex trader uses only trailing stops, others may use a combination of a time stop and a visuals of a chart or candlestick patterns to aid in exiting. The goal is to keep profits and reduce the risk. This can be done by using stop-loss orders, trailing stops, exiting when the entry criteria no longer exists, timed exits or strategy specific exits. Combining the methods makes it possible to retain more profits and reduce losses.

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