Introduction
Do you always face a problem where you do not know how to place your stop loss target? How many times have you shifted your stop loss to protect your profit for the day just to see your trade break even and just burst straight towards your profit target? As fellow traders, we know exactly how it feels.
Trading in a High Volatility Market
Gump and I had faced this problem over and over again. It happened so many times that we can’t even count by using both our fingers and toes.
When you are trading in a high volatility market, a movement of 20 pips within seconds is very common. Therefore we often wonder is there a strategic way of setting our stop loss target so that such tragedies can happen less often. This is why we decided to intensively study past market data to understand how it behaves. We studied mainly the USD denominated pairs like EURUSD/GBPUSD and AUDUSD and we think we found a solution.
The lesson we learned were priceless. We hardly get stopped out of a good trade nowadays. The times when we were stopped out, we saw the market surged or plunged to our opposite direction.
What exactly did we learn? We got 2 strategies to share!
Strategy 1: Strategic Stop Loss
At ForexGump we believe that stop loss should be placed at strategic spots. Imagine you are in a war, think of support and resistance level as your defensive wall. Would you place your “army” behind or in front of the wall to defend against your enemy? We would rather put ours behind it.
Our theory is very simple, when the price breaks through the first support/resistance level, it will most likely move to the next one. Therefore you won’t have to lose that much before it starts moving to your favor.
How do we identify our “defensive wall”? We will explain it step by step,
Always look at the big picture first, identify whether you are near a support or a resistance.
When you are near a support and you enter a long position, your stop loss will be 15-20pips (recommend by ForexGump) below the “defensive wall”. Vice versa when you are at resistance.
This can prevent big players ( Banks, institutions) and your “friendly” brokers from flushing you out easily. All they need to do is to pump in “a little” money and they can achieve their purpose.
OR you could use any one of THESE methods (maybe combined with your ‘plan’ above):
A Logical Method Of Stop Placement
Works (well) (on its own) for me anyway!!!
Regards,
Dale.
More often than not, stop outs are caused by bad entries.
Strategy 2: Multiple-Lot Strategy
We call it the “MultiLot” strategy. As the name suggest, it is to break down your usual trade position into 2-3 smaller positions. For e.g Break down your 1 mini position into 2 X 5 micro positions.
To illustrate, we give our positions a name.
We name it Ticket A and Ticket B.
This is what we do:
Once price moves 20 pips in your favor, adjust Ticket A’s stop loss target to the entry price so that you can reduce half your risk.
If price continues to move in your favor for e.g 50 pips. Adjust Ticket B’s stop loss target to the point of entry also.
Adjust Ticket A’s stop loss to 20 pips above your entry price.
Keep on adjusting stop loss target of both tickets gradually, locking in more and more profits as it progresses.
The whole objective is to allow you to reduce your risk while letting your profits run. You certainly do not want your winnings to turn into losses. You have to try it to understand it.
Final Note
Nobody likes losing money, nobody can avoid losing money in Forex trading too. This is why you need to refine the way you trade so that the risk-reward trade off is usually in your favor. You can never control the market but you can always control the risk you are willing to take. Keep on working at refining your skills and you will get to the top eventually!
Do share this article around if you think it made a positive impact on your trading thoughts!
Agree, that’s absolutely true.
First thing is trade something with some volume so u cant be taken out that easily. Next is to ALWAYS consider the SPREAD. The very best stop technique cannot be helped WITHOUT taking into account the spread on what u r trading