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| Know How To Place Stop Loss? |
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| Written by Hass67 | |||||||
| Thursday, 23 April 2009 18:48 | |||||||
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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 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. 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. More often than not, professional traders, trade with a stop loss at all, only keeping a mental stop loss. But you will need a lot of experience to trade this way. 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. With more experience, you will learn that placing fixed stop losses actually harms more. Rather than helping, using a fixed stop loss can hurt you more emotionally, psychologically and profit wise. 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. It is important for you to know that brokers constantly use stop hunting to take out your positions using noise in the market as an excuse. Learn how to beat the markets and the brokers. About the Author: Mr. Ahmad Hassam is a Harvard University Graduate. He is interested in day trading stock and forex trading. Discover a revolutionary new broker buster Forex Robot. Learn Forex Trading!
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