How To Place Stop Losses?
The forex markets are highly volatile. There is so much noise in the intra day forex market; it becomes difficult for new retail forex traders to know where to put the stop loss. The prices in the intra day market keeps on jumping 10-20 pips for no apparent reason.
The noise in the intraday market keeps on frustrating new day traders. They constantly find their stop losses being tripped even when the rates are going in the anticipated direction.
A static 10-20 pip stop loss is an arbitrary choice many traders make. Many new traders also use Trailing Stop Loss. Place your trailing stop loss too close and you will find your stop hit too early. Place it too far and you will have to forgo potential profits if the price retraces.
You should place your stop loss on dynamic levels. Most of the professional traders do use stop loss but mostly place it on their computers making them invisible to their brokers.
No body will ever tell you that your broker may be stop hunting against you. When a broker finds many stop loss orders at a particular rate on his price feed; he will try to trip these stops using a momentary blip in the feed. If you complain the broker will explain that the momentary spike happened due to a sudden large transaction in the market.
Do you know this many professional forex traders only use a stop loss in their mind. They plan entry/exit for each position. Keep on monitoring it changing, the stop loss in their mind as the rate fluctuates. When they reach the desired outcome, they close the position. With experience, you will also learn to do the same.
Moving Averages, Bollinger Bands, SARs etc can be easily used as dynamic stop losses by you. It is a good way to manage your risk while letting the currency markets to do what it wants.
The more experienced a trader you will become, the more you are going to realize that placing fixed stop losses actually hurts you more emotionally, psychologically and profit wise than help you.
You should not try to trade before or after a major economic news release. You should not try to place stop loss close to or at round numbers. And you should also not try to trade in times of thin liquidity in the currency markets.
You should understand that your broker can and will use stop hunting to take out your positions using noise in the market as an excuse. Forex trading and casinos have many things in common. You should learn how to beat the markets and the brokers only then you will become a successful forex trader. - 23212
The noise in the intraday market keeps on frustrating new day traders. They constantly find their stop losses being tripped even when the rates are going in the anticipated direction.
A static 10-20 pip stop loss is an arbitrary choice many traders make. Many new traders also use Trailing Stop Loss. Place your trailing stop loss too close and you will find your stop hit too early. Place it too far and you will have to forgo potential profits if the price retraces.
You should place your stop loss on dynamic levels. Most of the professional traders do use stop loss but mostly place it on their computers making them invisible to their brokers.
No body will ever tell you that your broker may be stop hunting against you. When a broker finds many stop loss orders at a particular rate on his price feed; he will try to trip these stops using a momentary blip in the feed. If you complain the broker will explain that the momentary spike happened due to a sudden large transaction in the market.
Do you know this many professional forex traders only use a stop loss in their mind. They plan entry/exit for each position. Keep on monitoring it changing, the stop loss in their mind as the rate fluctuates. When they reach the desired outcome, they close the position. With experience, you will also learn to do the same.
Moving Averages, Bollinger Bands, SARs etc can be easily used as dynamic stop losses by you. It is a good way to manage your risk while letting the currency markets to do what it wants.
The more experienced a trader you will become, the more you are going to realize that placing fixed stop losses actually hurts you more emotionally, psychologically and profit wise than help you.
You should not try to trade before or after a major economic news release. You should not try to place stop loss close to or at round numbers. And you should also not try to trade in times of thin liquidity in the currency markets.
You should understand that your broker can and will use stop hunting to take out your positions using noise in the market as an excuse. Forex trading and casinos have many things in common. You should learn how to beat the markets and the brokers only then you will become a successful forex trader. - 23212
About the Author:
Mr. Ahmad Hassam is a Harvard University Graduate. He is interested in investing; stock and forex trading. Discover a revolutionary new broker buster Forex Robot. Learn Forex Trading!
posted by X - Men @ 2:16 AM
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