Trading News for Beginners - Exit and Entry Points

July 07, 2022 14:38

In this article, you will learn the definition of exit and entry points in Forex analysis and how trading news events may affect your decisions. Read on for a broad overview of:

  • What are exit and entry points
  • Technical analysis
  • Fundamental analysis
  • Positioning decisions

Once you begin learning about Forex trading, one of the first topics you’ll read about is exit and entry points. These are the price levels at which you open a trade and close a trade, and there are different ways to approach this decision.

As you can see in the example image below of a pending order, there are two columns underneath the currency pair symbol and type of order. On the left is the entry point information where you input the price and stop loss levels. On the right is the exit point information, where you add your stop limit price and other information such as the expiration date of your trade. These levels make up your trading decision.

Source: Screenshot from Admirals MetaTrader 5 order panel.

Making trading decisions

The trading decisions you make very much depend on your trading plan, risk appetite and the type of analysis you adopt along your trading journey. Since Forex trading decisions are up to the individual trader, it’s smart to learn as much as possible about analysis.

You’ll hear endless opinions about entry and exit points from other traders and analysts, but the final decision is yours to make, so learning about technical and fundamental analysis is the best way to plan and then decide for yourself.

Types of Analysis

Technical Analysis

Analysis can be purely statistical. This describes Technical Analysis, which has different types of charting tools that show buying and selling trends, support and resistance levels and momentum, amongst other things. In each type of chart, there’s a major assumption: the entire history of the price data, movements and any influences upon the price are included in the chart and current price level.

Technical analysis is helpful because charts help to visualise market movements while tracking and monitoring price directions. Remember, the amount of data is massive, reflecting millions of trades comprised of price acceptance and rejection made on underlying assets, so visualising market movements with candlesticks or line charts is a vital part of trading.

Fundamental Analysis

Analysis can also focus on market sentiment and economic performance. This describes fundamental analysis and trading events like GDP growth announcements made by government statistics departments.

Keeping one eye on major news announcements is wise, even if you prefer technical analysis. While you may not be able to keep track of all news announcements, there are red-flagged events on Admirals Forex Calendar which could be market-moving and trigger volatility if the results are not in line with expectations.

Many traders prefer fundamental analysis as it tells the macro-economic story. Every currency depends on underlying economic performance, so traders who follow fundamental analysis and trading news events are in a way ‘voting’ on the currency’s strength or weakness relative to national economic performance.

The ideal is to combine fundamental analysis with technical analysis because of the overlapping areas, it’s like using both eyes to see. Trading news events can explain market movements and are often reflected in the corresponding chart movements.

Example of combining Technical and Fundamental Analysis

For example, imagine you’re a trader who relies 100% on pure technical analysis. The gold spot/USD instrument XAUUSD starts falling on the chart you’re watching. Why is this happening? As a purely technical analysis trader, you might think that gold was just oversold or failed to break through a price resistance level.

Unbeknownst to you, the Federal Reserve has just raised its key interest rate guidance and other traders have decided to sell gold in favour of buying USD currency pairs instead. Since the Federal Reserve’s decisions are so influential, there could be a longer-term effect on gold assets because the USD becomes more attractive as a safe-haven buy. As a pure technical analysis trader, if you didn’t know about the Fed’s decision, you might miss the chance to price in the longer-term impact of monetary tightening.

Exit and entry points are also called taking positions.

Positioning decisions

As a trader, your approach to positioning is one of the most important things to think about. Some key questions to ask yourself are:

  • Do I prefer short-term or long-term positions?
  • How much time do I have to monitor my trades?
  • Which instruments do I know best and feel the most comfortable with?
  • Am I up-to-date with the latest market information about my trade?
  • What does my research tell me?
  • What is my trading plan?

The answers to these questions can tell you a lot about the type of trader you might become once you gain some experience in the markets.

Additional resources

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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks. 

Sarah Fenwick
Sarah Fenwick Financial Writer, Admirals London

Sarah Fenwick's background is in journalism and mass communications. She has worked as a correspondent covering Swiss Stock Exchange news and written about finance and economics for 15 years.