I’m curious what time frame you trade and how you price the trade?
For instance if a currency is 1.2345 then what number do you put in for the buy, and stop loss? The reason is that the buy price seems to zig zag all over the place each second… so wouldn’t that trip your stop loss? Also howdo pips factor into all this? Isn’t a pip .0001 ? So wouldn’t the zig zagging cause you to trip the stop loss?
Just curious how this works so I can trade properly trough my demo account…
Thanks!
Hi Crush,
If you are worried that price movement on a per second basis might take out your stop loss, it means that your stop loss is placed way too tight. And that applies even if you are a scalper looking to take small but frequent profits. You should consider placing them further away from the current market price, as well as aim to take a larger profit off each trade, i.e. maintain a proper risk-reward ratio.
The great old question of where to put the stop loss?
I can help you a little.
It really depends on how you trade. If you trade charting formations and price action there are projections you can use to project your profit target I have all common charting formations at my website so you can check them out and see the projections. Then once you know where your profit target is then you can find out what your stop loss should be. Then if your stop loss looks to be ok then you can trade it.
Your stop loss is also part of your money mangement method. If you use 2:1 profit to loss ratios then if you have a profit target of 400pip then your stop loss should be 200pip.
Below is an example. The projection when trading a support level is to the last resistance level. This is in theory only and is common practice. However if the profit target projection is too far away i might lower it.
Hey guys thanks for the responses. I really appreciate it. I understand how the above would work for buying a stock. But when I look at the live moving price to the right most of the chart, it ‘swings’ up and down pretty violently.
So if I understand:
-For a price of 1.2345 the number ‘5’ is a PIP
-Each PIP is heavily leveraged and violent swings can wipe out your account (?)
-I place an order at 1.2345 and a stop loss at 1.2350 (1 pips upwards as an example)
Question: Right after I place the order, couldn’t there could be a violent swing upwards triggering the stop loss right away (?)
On a stock I fully understand. You buy at $50, set the stop loss lower at $40… But just looking at the live currency prices, they seem to swing quite violently up and down when factoring the PIP system and how much movement there is. So it seems that my stop loss would get triggered almost right away.
It’s hard to explain what I’m trying to say hehe… and I’m not sure if leverage ratios and account deposits factor into this either…
Hi Crush,
When you place a trade you need to know four things.
Now say you have an account balance of £1000 and you see some kind of trade set up that you want to trade. First you want to work out how much money you are willing to risk. Personally I risk no more than 2% but more commonly I will only risk 1%. so my max risk would be.
£1000*2% = £50
Now I know how much I am prepared to lose I look at the entry price I want. Let’s say it is 1.3250. Now I normally risk on average about 20pips so I would place my stop loss at 1.3230 (if I was long)
Now if I didn’t want to lose any more than £50 I need to work out how much per pip I am wanting to place I do this but dividing risk amount (£50) by the amount of pips there are between my entry and my stop (20)
£50/20 = £2.50
So now if I enter a trade with the above criteria I know that if things go the wrong way I will only lose 2% of my stake.
There are lots of ways to determine entry and stop levels. Some people will use greater stop levels e.g 100pips some may only risk 5pips but the calculation will always be the same
Total £ to risk / number of pips to stop loss.
I also think that you might be looking at lower time frame charts 1min etc as you say you are seeing violent swings. There are very few people who are successful trading these lower time frames. If you use higher time frame charts 1 hour / 4 hour / daily those violent swings that you see suddenly don’t seem so big.
Hope this helps a little
DT.
