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Exiting Trades
As with entering trades,
exiting trades can be
done with either a "Market" order, a "Limit" order, or a
"Stop" order. "Trailing Stops" are variations of
stops and can also be used effectively to exit trades.
Exiting trades will generally result in a loss or a gain on an open
position, and should be done once you have reached your profit target,
your maximum loss, or when your market view has changed.
Exiting with a Market
Order. Exiting a trade with a market order means that you will
sell at your brokers current
"bid" price, or buy at your brokers current "ask"
price, whatever that price currently is. For example, suppose
you had purchased one lot of USDJPY, meaning you are long one lot.
If you then assume that the current market is 127.51/55, you know that you can exit your
existing long position at 127.51 (that is, sell it to close at 127.51).
On the GCI system, this
is done by right clicking on the open position in the "Open
Positions" window. You can then select "close
position" from the pop up menu, enter the lot amount you wish to
close, and click "OK".
Exiting with a Stop.
Exiting a
trade with a stop order means that your position will be closed after an
adverse market move of a specified amount. This does not necessarily
mean that you have incurred a loss on the trade (see "trailing
stops" below). For example, if you had purchased 1 lot of USDJPY
and it is now trading at 128.50/54, you could
place a Stop at 128.20. This means that the order
will only be filled if the market moves down to 128.20, limiting your loss
to .30 (30 pips).
On the GCI system, you can place an order
to exit a position on a Stop order by right-clicking on the position in
the "Open Positions" window, and then selecting "Stop" from the pop up menu. You can then input the order size
and price.
A Trailing Stop is placed in the same
manner, but the concept here is that the stop will be moved as the market
moves in your favor (the stop "trails" the
market"). So for example, assume that you had placed your
stop at 128.20 with a long USDJPY position at 128.50. If USDJPY
moves up to 128.90, you could then move the stop up to 128.60. This
would ensure a worse case of a gain of .10 (10 pips), while still allowing
unlimited upside if USDJPY continues to rise.
The advantage of exiting with a Stop is that
(1) you limit your downside to the amount you specify with your stop, and
(2) you have unlimited upside in the event that the market continues to
move in your favor. The
disadvantage is that markets will occasionally move adversely initially,
causing your stop to be filled and closing your position, and then proceed
to move in the direction that you had originally anticipated.
Exiting with a Limit Order.
Exiting a
trade with a limit order is an effective way to ensure that you will
capture profits once your profit target is reached.
On the GCI system, you can place an order
to exit a position on a Limit order by right-clicking on the position in
the "Open Positions" window, and then selecting "Limit" from the pop up menu. You can then input the order size
and price.
The advantage of exiting a trade with a
limit order is that your position will be successfully closed if your
profit target is reached, even if only for a few seconds. For
example, if you purchased USDJPY at 128.50 and placed a limit order to
exit the trade at 129.50, you will successfully capture a 1.00 profit (100
pips) if 129.50 is reached even briefly and then the market falls
again. The disadvantage is that you will limit your upside,
foregoing additional gains if the market was to continue to move in your
favor. Furthermore, you will not limit your downside if the market
moves against you. For example, if the market rises to 132.00, your
profit will still be limited to the 100 pips because your position was
closed at 129.50. If the market moves down below 128.50, your losses
will not be limited, unless you had also placed a stop on the open
position (see "exiting with a Stop" above.
Using Stops and Limits Together.
A common strategy is to place both a Stop and a Limit on the same open
position. On the GCI system, the position will be closed by
whichever order is reached first, and the other order will automatically
be cancelled. This is known as "OCO" or "One Cancels
the Other".
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