One thing I learned in my noobie forex adventure is to adjust my SLs to current volatility. If price movements are small, then you should use small SLs. If movements are big, so should be your SLs. In my last trade, I lost out on a 30 pip breakout simply because I stuck to my generic 5 pip SL without considering volatility.
Are there any indicators that measure volatility? I tried using the ADX indicator but it only measures the strength of trends. I also used the Volume indicator under MT4 and while there is some correlation between volume and volatility, you can also have high volume with low volatility as well so it’s not completely accurate.
Just curious, are you a 1-min scalper? What currency pair are you trading? A 5 pip SL seems extremely small. If you trade GBP/USD, for instance, you should be accounting for at least around 3 pips just for the spread. That = 2 pip SL essentially. EUR/USD is at least around a 2 pip spread on average = 3 pip SL after accounting for the spread. Volatility alone, even in relatively low volatility market conditions, would wipe out your SL.
Sorry to sidetrack from your question. I’m just really in awe by your generic SL, but if it works for you, I’d be interested in getting to know your trading style Good luck in your search for a volatility indicator.
A 5 pip SL, that’s really cutting it short. But yea, getting hands on a volatility indicator that’s right every time is not easy, some traders will swear by one indicator or the other…
Well I use a 5 minute timeframe and trade on “high probability” as I understand it. If the market is rising, I’ll draw a trendline along the troughs. If it’s falling, I’ll draw a trendline along the peaks. When RSI < 30 or RSI > 70, I’ll trade any trendline breaks and and ride it out until RSI hits 60 if going long, or 40 if going short. If ADX > 40 and/or I see divergence before the trendline breaks, then I think about increasing the size of my trade since these would indicate higher probablity of a break. I’ve had really good success with this system so far except the one case when I hit massive volatlity. I’m still experimenting but may post my strategy if it goes well over the next few weeks.
The 5pip SL doesn’t include spread, so really it’s a 7-7.5 pip SL. I’m looking for a way to formulate an optimal SL with a volatility indicator so will spend some time with ATR. Thanks guys!
Good luck in your search for a volatility indicator.