Know How To Place Stop Loss?
The intra day forex market is full of noise that it becomes difficult for new traders to understand where to put the stop loss. There is so much noise in the forex markets in the short run that prices tend to jump 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.
A static 10-20 pip stop loss is an arbitrary choice many traders make. Many new traders also use Trailing Stop Loss. Place your trailing stop loss too close and you will find your stop hit too early. Place it too far and you will have to forgo potential profits if the price retraces.
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.
Using dynamic stop losses such as Moving Averages, Bollinger Bands, SARs etc is a better way to reduce your risk while allowing the markets to do what it wants.
The more experienced a trader you will become, the more you are going to realize that placing fixed stop losses actually hurts you more emotionally, psychologically and profit wise than help you.
You should not try to trade before or after a major economic news release. You should not try to place stop loss close to or at round numbers. And you should also not try to trade in times of thin liquidity in the currency markets.
Stop hunting is something that you should know. Many forex brokers pry on new traders and keep on tripping their stop losses terming it market noise.
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