Making your Stop is in the Right place – Forex Trading
When I trade, I always ensure that I put a stop in for every order.. this is usually 50 pips or points and acts as an emergency stop should anything drastic happen with the markets or if my internet connection dies.. I know my maximum possible loss.
However, it is important to ensure that a stop is place in the right place otherwise you’ll be hammered by the stop hunters as they seek to take you out.
My trade today on the GBPUSD was as below.. I saw a triple stop in the 15minute timeframe and placed an order to sell at the break of the neckline. My stop was 50 points away, I gave no thought to where this was in terms of support/resistance levels but have identified where it was on the chart. I had a target level of 15930 so this would have given me 40 pips.
Two things come to mind in hindsight of this trade. Firstly, the stop level. There was a triple top and therefore resistance at around 16020… my stop was actually 16014 so I wasn’t far off. However, the price action hit my stop and took me out. My stop wasn’t even behind the last resistance line which was a bad move!
The second thing was my risk/reward ratio. If I had place the stop properly, there would have been a 60 pip stop. Considering I was looking at taking 40 pips with this trade, perhaps I shouldn’t have even considered the trade.
It just goes to show that some planning is required ahead of making trades… one should know his entry, stop and limit and ensure that this are in order before trading.
I lost 50 pips on this trade due to bad planning.
