How To Choose the Right Entry and Exit Point?

What do you think sets an expert trader apart from a beginner? Among the many traits is the knowledge of exactly when to jump into a trade, and more importantly, pro traders know when to get out. In essence, they always have an entry and exit strategy, which allows them to spot the best opportunities and act at just the right moment. On the other hand, newer traders often struggle with this; they are either getting into and leaving trades too late or too early.

Of course, learning how to do this requires a lot of practice, but having the right tools and knowing how to use them to make these smart decisions is extremely important. In this guide, we break down how to pick the best entry and exit points in your next trade. 

Understanding Entry and Exit Points

The more you trade in financial markets, the clearer it becomes that market prices almost always do one of three things: they will go up, go down, or move in a sideways consolidation (which is when prices fluctuate within a narrow range without an obvious upward or downward trend). Imagine a stock that trades between $50 and $55 for several weeks without breaking out of this range, that’s sideways consolidation. While this might sound simple enough, predicting when these movements will happen without a platform like the TradingView app is nearly impossible. Platforms like these provide market charts and features that allow you to perform detailed analyses effortlessly. At the end of the day, all you need as a trader is a tool that simplifies the view of any market (whether it’s forex, stocks, or crypto) which then allows you to make good trading decisions. 

 

One of those many decisions is knowing when to enter and exit a trade. So, let’s dive into the essentials of entry and exit points and explore why they’re the cornerstone of any winning trade strategy.

What Are Entry Points?

To participate in an investment or a trade, you must engage in a transaction by buying or selling the security you’re interested in. The price point at which you start that transaction is called an entry point. A good entry point is an essential step in executing a successful trade. Say you’ve been recently thinking of investing in Bitcoin because of its current 2024 bull run that started in November. A good entry point would be the price at which you enter the trade, which will ensure you make enough profit down the line. 

Selecting a good entry point requires a mix of patience, discipline, and market awareness. Having market awareness is really important because it allows a trader to properly analyze trends and key price levels to choose the best time to enter a trade, but patience and discipline are traits that will make sure a trader waits for the right opportunity and follows through on their trading plan.

What Are Exit Points?

The price point at which you leave a trade or an investment is called an exit point. In other words, it’s when a trader closes a position on a trade, usually by selling. Picking the right exit point in a trade is as important as having the right entry point because, without a clear exit strategy, you might hold onto a winning trade and watch your profit slip away from you. Or worse, watch as losses pile up.

Generally, there are 2 main types of exits:

• Profit-taking exits: These types of exits are usually planned ahead of time, with a specific target price at which your trade closes when it’s in the green.
• Stop-loss exits: These types of exits are a safety net. They are set to automatically close your trade if the price moves against you, helping you avoid large losses. The common types of these exits are fixed stop-loss, trailing stop-loss, and volatility-based stop-loss. Each is designed to manage risk in different trading scenarios.

Choosing the Right Entry and Exit Points When Trading

A common misconception among newer traders is that they can guess their way into the “correct” entry and exit. That approach is highly ineffective, especially if the goal is to maximize profits and minimize losses. So, it’s crucial for a trader’s success that they know how to choose the right entry and exit strategy. It’s a skill that requires a combination of technical analysis, market research, and disciplined decision-making. Below, we outline the key steps to developing this essential skill.

Identifying the Right Entry Point

To select the best entry point, you need to consider the following factors:

1. Technical Analysis

Before entering a trade, you need to identify key price levels where the asset has historically struggled to break through (resistance) or bounce back (support). Entering trades near these levels is a common practice among expert traders because prices can either continue around previous support and resistance or continue in its direction until they hit another level of support and resistance.

Also, moving averages (e.g., 50-day or 200-day) are your friend when it comes to determining trends in a market. A common practice when using moving averages as a guide is to enter long trades when the price crosses above a moving average and short trades when it crosses below.

1. Fundamental Analysis

Every good trader knows how important news events, earnings reports, or economic indicators are when anticipating market movements. For example, trading a major USD pair during a U.S. election is really risky but could offer opportunities if you predict the outcome accurately. 

1. Indicators To Confirm the Entry

Using indicators to confirm entry into a trade is a very common practice among traders. One such indicator is the Relative Strength Index (RSI) where expert traders look for oversold (below 30) or overbought (above 70) conditions to time entries. Using indicators to find and time entries is a common practice among traders, but you need to understand that it doesn’t guarantee a 100% win rate on your trades.

Determining the Exit Point

1. Setting a Stop-Loss

Setting a stop-loss order allows you to exit a trade automatically when the price reaches a predefined level. This protects you from large amounts of losses. A very common question among traders is, “How many pips is good for stop-loss?” The answer depends on many factors, especially your asset's volatility.

In the forex market, for example:

• If you are trading for low-volatility pairs (e.g., EUR/USD), a stop-loss of 10–20 pips might be sufficient, depending on the duration of your trade.
• If you are trading for high-volatility pairs (e.g., GBP/JPY), you may need a stop-loss of 50–100 pips also depending on the duration of your trade.

Please note that you must always align the stop-loss with technical levels like support or resistance for proper placement.

1. Setting a Take-Profit Level

This helps you to automatically close your trade once it reaches your desired profit target. For you not to leave any potential gains on the table. The amount of profit you can take on a single trade depends on your risk-to-reward ratio. However, a common ratio among traders is 1:2 or 1:3, meaning you aim to gain 2–3 pips for every pip risked. 

For example, if your stop-loss is 20 pips, your take-profit target should ideally be 40–60 pips. It is very important to adjust the ratio based on market conditions and not just follow a formula from “gurus.” Trending markets might allow for higher targets, while choppy markets might require a more conservative move.

Practice Makes Progress

Mastering entry and exit points makes the difference between successful traders and those who struggle. You need to learn to combine technical tools, market analysis, and disciplined strategies to get a handle on this skill. With this skill in your arsenal, you can make smarter, more consistent trading decisions.