Where To Place Stop Losses?
Currency prices in the forex markets are always jumping up and down. Forex markets are volatile most of the time. In the short term, you will only find noise in the intra day forex market. This makes it difficult for new day traders to know how to put a stop loss. Most of the time, prices in forex markets jump 10-20 pips for no apparent reason.
This becomes frustrating for many new day traders. Most constantly find their stop losses being tripped due to noise even when the rates are going in the anticipated direction.
Many new forex traders develop the habit of using a static 10-20 pip stop loss. This is an arbitrary decision. Many also try using a trailing stop loss. However, if placed too close; your stop hits too early. And if placed too far; you will have to forgo potential profits if the price retraces later on.
The actual reality is this that many professional forex traders do use stop loss but mostly place it on their computers making it invisible from their brokers. A better method to place a stop loss is by using a dynamic level that changes as the market rate changes.
Stop hunting is something the brokers are continuously doing. If a broker finds many stop losses at a particular price level on his price feed; he can easily trip them using a momentary blip in the price. You cant even complain. The momentary spike happened due to a sudden large transaction in the market.
However, many professional forex traders only use a stop loss in their mind. They continuously keep on updating it until they get the desired outcome. But you will need a lot of experience trading the forex markets to do this.
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 experience you will develop as a forex trader the more you are going to understand that placing fixed stop losses actually hurts more. Using fixed stop losses can hurt 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. - 23223
This becomes frustrating for many new day traders. Most constantly find their stop losses being tripped due to noise even when the rates are going in the anticipated direction.
Many new forex traders develop the habit of using a static 10-20 pip stop loss. This is an arbitrary decision. Many also try using a trailing stop loss. However, if placed too close; your stop hits too early. And if placed too far; you will have to forgo potential profits if the price retraces later on.
The actual reality is this that many professional forex traders do use stop loss but mostly place it on their computers making it invisible from their brokers. A better method to place a stop loss is by using a dynamic level that changes as the market rate changes.
Stop hunting is something the brokers are continuously doing. If a broker finds many stop losses at a particular price level on his price feed; he can easily trip them using a momentary blip in the price. You cant even complain. The momentary spike happened due to a sudden large transaction in the market.
However, many professional forex traders only use a stop loss in their mind. They continuously keep on updating it until they get the desired outcome. But you will need a lot of experience trading the forex markets to do this.
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 experience you will develop as a forex trader the more you are going to understand that placing fixed stop losses actually hurts more. Using fixed stop losses can hurt 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. - 23223
About the Author:
Mr. Ahmad Hassam has done Masters from Harvard University. He is interested in investing; options and forex trading. Discover a revolutionary new broker buster Forex Robot. Learn Forex Trading!
posted by X - Men @ 2:01 AM
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