Know How To Place Stop Losses?
The intra day forex market is full of noise that it becomes difficult for new traders to understand where to put the stop loss. There is so much noise in the forex markets in the short run that prices tend to jump 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.
Most of the new day traders use a static 10-20 pip stop loss. This is an arbitrary choice many traders make. How about using a trailing stop? If you place the trailing stop loss too close; you will find your stop hit too early. And if you place it 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.
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.
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.
Using dynamic stop losses such as Moving Averages, Bollinger Bands, SARs etc is a better way to reduce your risk while allowing the 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.
Never ever trade, just before a major economic news release. Dont place your stop loss close to or at round numbers and at times of thin liquidity in the 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. - 23210
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.
Most of the new day traders use a static 10-20 pip stop loss. This is an arbitrary choice many traders make. How about using a trailing stop? If you place the trailing stop loss too close; you will find your stop hit too early. And if you place it 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.
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.
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.
Using dynamic stop losses such as Moving Averages, Bollinger Bands, SARs etc is a better way to reduce your risk while allowing the 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.
Never ever trade, just before a major economic news release. Dont place your stop loss close to or at round numbers and at times of thin liquidity in the 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. - 23210
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 @ 4:44 AM
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