Are market exits more important than entries?

Most forex traders focus primarily on how to improve their entries in order to make profits. The problem is that they spend very little time fine-tuning their market exits, which can ultimately be much more important.

When traders are tuning and testing their strategy, they need to keep in mind not only how they will enter the trade, but also how they will exit the trade. Less experienced traders pay little or no attention to exiting the markets.

The search for the "holy grail"

First of all, they decide which indicator will be suitable for them, how to ensure that there are as many entries as possible and, of course, that the success rate of trades is as high as possible. The key, in short, is finding the holy grail that will show us how to hit only the right trades.

Exit strategies and trade exits are much more important and have a much greater impact on overall returns and continuity of results than the way a trader enters a trade.

At one conference, I even heard the perhaps slightly controversial view that it doesn't really matter how you enter the market and at what price. Because at the point of entry, statistically speaking, you still have a 50% probability of ending up in the red or in the green. We can speculate on whether this is actually the case, but statistically there is something to it.

Exit is more important than entry

A good exit can save the day, even if the trader's entry into the market is not ideal. Conversely, a trader can enter the market in near-ideal conditions, but a mismanaged exit strategy can lead to failure.

Perhaps the biggest problem with exit strategies is the fact that there are so many variables that play a role in them, and therefore it takes (or at least should take) much more time to fine-tune an exit strategy than it does to find an entry strategy. When a trader does not neglect testing the exits in his backtesting and forward testing, he can rely on his strategy and avoid the basic mistakes that inexperienced traders make in trading.

Basic mistakes when exiting markets

This includes, for example, premature exits driven by unnecessary fear or exiting too late due to unnecessary greed. In the first case, the trader forgoes additional returns by either not keeping his TP and exiting the market on the first swing against the direction of his trade, or simply setting his TP too conservatively. In the second case, again, the trader wants to make maximum money on each trade at any cost. Often, however, he does not react to market developments and holds the trade much longer than necessary, thus giving the profits back to the market.

Even more important is to lock in exits at a loss. In the first case, the trader holds the losing trade for too long, in the worst case he still moves his SL (if he has set it at all) into a deeper loss, hoping that the market will turn, and he will end up in profit. However, the result is only more losses. In the second case, the trader sets an SL that is too tight and does not match the entry or the time frame on which the market gave him the signal. The loss in this case is small, but unnecessary, because in the case of a better SL, the losing trade could have eventually turned into a profit trade.

Patience when changing strategy

Thus, each trader can significantly increase his long-term success rate even by making relatively minor adjustments to the output parameters. Thus, when a trader struggles with poor consistency and is unable to trade profitably over the long term, he should first adjust the market exit rules. Good market exits can turn a strategy that looked hopeless at first glance into a profitable system, and vice versa. If that doesn't help, it may be time to rebuild the entire strategy.

In the next article, we will try to look at how risk management can be approached just from the perspective of the trader's exit strategies. Since something different may suit every trader, we will try to describe as many exit strategies as possible that traders can use in trading today. Trade safely!