How to close position: ways and strategies

05-03-2021

In the quest for profit, newbie traders often put all their energy into finding the best entry point. And that is not entirely incorrect. However, just having an accurate market entry point is not enough. You need to know how to close positions as well.

In today’s article, we shall discuss the topic of position closure in the exchange and the ways in which it’s done.

Contents:

1. Scenarios in Which You Should Close Positions
2. Ways to Close Positions
3. How and When It Makes Sense to Close Positions Manually
4. How to Have Positions Closed Automatically
5. How to Close Positions Partially in Forex

Scenarios in Which You Should Close Positions

What does ‘closing position in the exchange’ really mean? Essentially, it implies that you exit the trade with a certain outcome. Ideally, it should be profit. However, losing trades are a normal part of any trading strategy that even the most successful traders experience in their day-to-day activities.

What are the things you should rely on when making a decision about position closure? Obviously, these should be the rules of your trading strategy. They may include the previously outlined situations when you should exit positions and ways to do that (especially, when you are using a ready-made strategy). Otherwise, you will have to work out yours on your own.

Ways to Close Positions

You can close the trade either manually or automatically. What makes the manual approach convenient is that it remains under your sole control. That being said, it has one significant drawback. You may not have enough time to exit the trade at the best price available due to increased volatility or simply miss a relevant signal.

You can also close positions automatically with help of:

  • Stop loss;
  • Take profit;
  • Trailing stop.

When and how to close a trading position

How and When It Makes Sense to Close Positions Manually

Manual position closure works best in the following two instances:

1. If your trading strategy instructs you to do so e.g., in cases where the indicator gives you a specific signal.

2. If the price hasn’t reached take profit yet but major news is about to be released which may affect the state of the market. And so, you wish to take profit before there is a spike in volatility.

Now if something doesn’t go as planned and you need to close the position as soon as possible, there is always a manual way.

To close a position in MetaTrader 4 or MetaTrader 5 trading terminal, go to the ”Terminal” table and find the desired trade in the “Trade” tab. You can also click on the cross at the right end of the line, or open the context menu using the right mouse button and select “Close order” there. Then press the “Close” button in the appeared window.

How to Have Positions Closed Automatically

  • What makes this method handy is that traders don’t have to keep a close watch on the trade the whole time. The trade will be ultimately closed without your involvement. This is an obvious advantage. With that said, it’s important to carefully plan your trades before you open them.
  • The market situation may change. This can be due to the unplanned news or when the anticipated news turned out to be quite different from the initial forecast. If the price has not reached the take profit yet and there is a sudden dramatic price reversal, you will be able to save at least a portion of profit by closing position manually only. And that’s the downside of it. So, even if you are using stop loss and take profit, you must keep an eye on your positions where possible.

Now how do you close a position automatically from a technical standpoint? When opening a position in the “Order” window, make sure to enter your stop loss and take profit right away. If you have already opened it without these orders, find your position in the "Trade" tab of the "Terminal" table. Open the context menu using the right mouse button and select "Modify or Delete Order". Enter the stop loss and take profit values in the window that will appear. When the price reaches one of them, the position will be closed without you having to do anything.

Another aspect that is particularly noteworthy is exiting with trailing stops. This is a floating stop order that follows the price. When the price reverses, this order becomes a regular stop loss. This method for exiting positions allows ‘locking in’ maximum profit when price moves in your desired direction in case of increased volatility while protecting the trade from risks.

WARNING!

For this method to work, your trading terminal must be running.

How to Close Positions Partially in Forex

Now let’s explore how to close a portion of a position in MT4 and MT5. Partial closure makes sense if you wish to ‘grab’ maximum price movement while keeping your risks to a minimum. In this scenario, if you have opened the trade with divisible volume, you can exit it gradually.

Here’s How to Close Position Partially in МТ4 and МТ5 Explained Step-By-Step

1. Find a desired trade in the “Trade” tab of the “Terminal” table.
2. Open a context menu and select “Close order”.
3. There is a “Volume” field in the window of the manual order closure. Choose the one you wish to close. A portion of the profit will be locked in. Other lots will remain open.

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