Tips to Make a Smart Stop Loss in Forex Trading
Following are some useful tips to choose a smart Stop Loss in Forex trading. When the current price is near to a recent high or low point, place your Stop Loss at about 5 to 10 pips either above or below that particular point. The prices do move back to check on the recent high and low prices and it is important to place the Stop Loss pertaining to the recent price movement. Sometimes the Stop Loss can even be 30 to 40 pips higher than your static 100 pips Stop Loss, which makes the trade based on daily chart quite complicated and tricky. Make sure not to place your Stop Loss at critical boundary numbers like a 50 mark, as these points are frequently tested and there is a high possibility of closing you out. You should never place your Stop Loss at an even number. It is always better to place your Stop Loss on odd numbers, except 9 and 1.
Forex brokers literally hunt for your Stop Loss. Unlike Dow where prices do not differ from broker to broker and the entire trading is under a single organization, Forex brokers can control and manipulate the prices to their advantage. This is the reason for their interest in your Stop Loss. You might want to know why brokers want you to lose. This is because each time you open a deal, the broker opens a corresponding opposing position. So when you lose the broker wins. Also, most important, they will want you to make transactions frequently as they reap in money as commissions or spreads, or sometimes both. Stopping you out is the only way by which they can force you to trade more often.
An insight for you to take a pause: do you stop to think why brokers are so eager to hand out free advice, tricks and market research? Though some may not agree to this, the reason for the free hand outs is that it is much easier for a broker to hunt them out if all their traders are making trades in a particular pattern. The only way to outwit the brokers is to refrain from placing any Stop Loss. Instead place a mental Stop Loss. Set up alarms in your trading system at the prices that you will take your losses. This will alert you when the price gets closer to your mental Stop Loss position. Although this method is quite complicated and challenging to some, with practice and luck it is possible for you to achieve this and once done you will be amazed at the results.
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November 6th, 2009 at 2:46 am
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