To answer this question, several different factors must be considered; there is no 'one size fits all' answer. This question is among the most imperative components of a forex trading system, yet one of the least appreciated. A forex trader must consider factors such as the entry system used, amount of risk taken, money management strategy and overall forex trading strategy.
The beauty of this game is to enter and exit at the right time. A correct forex trading exit strategy can easily turn a losing trader into a winning trader and when done wrongly or inconsistently it quite easily has the opposite effect.
If you exit your winning positions with a 100 pips profit but you exit your losing positions with a 200 pips loss than you would need twice as many winners in order to break even.
I use mainly trend following system in daily forex trading, this is in part of my overall forex trading strategy. In this article I will specifically address a system that incurs a number of small losses for every big win. Meaning that contrary to the above example, I must search for opportunities that might possibly lose 50 pips in order to win 250 pips and more.
When referring to a trend following system, closing winning positions prematurely is by far one of the most common errors that forex traders make. Unfortunately, it happens too often. Numerous forex traders become their own major obstacle when it comes to accepting big wins.
Although everybody wants them, not everyone allows them to develop. This takes discipline.
Closing winning positions too early happens mainly because of one's emotions. Emotions like fear, greed and hope cause us to incur losses while ignorance, fear and greed can cause us to take our profits prematurely.
A common example of the thinking process that takes place in such cases is as follows; a trader enters a trade and the trade goes in the trader's favor. The trade yields him or her some profits and the currency trader is both happy and very excited.
Our trader does not realize that price doesn't go straight up or down, due to normal volatility. After advancing in a certain direction, price always retraces some portion of the advance. When price begins its inevitable retracement, our trader watches some or all of the profits that were just gained disappear into thin air. He or she becomes extremely concerned.
Anxious not to lose all of the profits, our trader closes the position or moves the stop-loss way too close and gets taken out with a minimal profit.
The continuation is usually the same, the retracement eventually comes to an end and the trend maintains its advance. Profit is lost.
Sometimes, it is necessary to allow the market to go against you while watching some or all of your profits from a certain trade disappear; it depends mostly on your overall forex trading strategy; it takes tremendous discipline.
I am an active forex trader but now I make good profit because I am using a reliable forex software that takes care of majority of trading patterns and gives me right intimation to enter and exit.
Please visit at http://best-forex-trading-system.weebly.com to find out which software I'm using.