If you are a complete beginner in forex trading, it’s important to know when to close all open trades. This is one of the most important rules that you should adopt in risk management.
In this article, we’ll talk about the different times you might want to close all your open trades. Additionally, you will also understand why mastering the art of closing all open trades can be a useful tool in a forex trader’s trading plan.
Table of Contents
6 Tips to Help You Understand When to Close All Open Trades in Forex Market
Meeting a Profit Goal That Has Already Been Set
One of the most important times to close all open trades is when you hit a profit goal you already set.
Closing all open positions when you reach this goal can help you lock in your gains and avoid losing money. It is a good practice to set a specific dollar amount or percentage goal for your trading activities.
When a Maximum Drawdown Limit Is Reached
A drawdown means that the value of your trading account has reduced since it was at its highest.
You can, and you should set a maximum drawdown limit to protect your forex account from big losses.
When your account hits the drawdown limit, you can choose to close all open trades, or close trades with the biggest losses. This strategy is very helpful for capital preservation and avoidance of uncontrolled losses.
Announcement of Big Economic News Events
Major economic news releases usually make the forex market very volatile. It would be helpful if you remembered that when there is high volatility in price action, there is a higher risk of your trade setups being invalidated.
In these situations, closing all open trades before the event can protect your account from unexpected market responses and keep you from losing a lot of money.
The End of the Trading Week or Trading Session
Some traders like to close all open positions at the end of the trading session while others prefer closing all their trades at the end of the week. The reason for this approach is to avoid the risks that come with keeping trades open overnight or over the weekend.
To expand on that, there may be events happening outside of the trading session causing prices to open at a level significantly different from the close of the previous session.
When a Trade Setup Has Been Invalidated by Price Action
If you notice big changes in market conditions or trends, you might want to close all of your open trades and rethink your trading strategy. This method lets you take a step back and reassess the new market.
The importance of reassessing market conditions after a good setup has been invalidated is that you are likely to come up with new directional bias on time and “catch” sniper entries as early as possible.
Personal or Emotional Reasons
You should know that psychology is one of the most important skills in trading. In some cases, you may want to close all of your open trades because of personal reasons.
For example, if you go on a vacation, you may close the positions to avoid having divided attention. That is if you don’t use trading tools that help in closing running trades automatically at preferable price levels. All that a trader wants when on vacation is to enjoy quality time without thinking about trading the forex market.
Likewise, you could have emotional reasons to stop trading. For instance, you might be under a lot of stress or not be in the right state of mind. It is always best to avoid trading when you can’t focus on conducting a proper chart analysis and maintaining your running trades.
Beginner Forex traders and experienced traders alike need to know when to close all open trades and stay clear of a forex chart. By knowing the different times when you should close all open positions, you can make better choices and improve your trading results tremendously.
So far, you have learned a few reasons that could lead you to close all your positions. If you use the Metatrader platform, it is recommended that you use a forex tool that is specifically designed to help traders close all open positions automatically in the software.