Unfortunately there's no set place where you should place your fixed stops in Forex trading. In fact it's actually different for everyone; ultimately, it will depend on your own Forex trading strategy, where you place your fixed stops.
As you will probably already know, fixed stops are used to automatically close your trades once they reach a certain profit/loss, as set by you, the Forex trader. Fixed Forex trading stops are used by most traders and investors in the Forex market, to cut losses. You should set your fixed stops appropriately to allow for the most profit to come through though, as many currency traders don't set theirs appropriately and get stopped out too often.
In order to maximize your profits when placing stops, you don't just want to cut your losses, but you want to allow for some room for movement so that you don't keep getting stopped out like many currency traders do. Your trades could come down in value and then right back up, so you don't want to set your stops too close to your points of entry, or you could miss out on some nice profits. By all means ensure that your stops effectively cut your losses, but don't let them cut potentially profitable trades.
If you use a long-term Forex trading strategy, your stops will obviously need to be wider, because you are in it for the long-term and need to allow for more movement. When using short-term currency trading strategies like scalping, you will most likely want to place your fixed stops closer to your points of entry. If you had the same wide stops when using shorter-term trading strategies, you would most likely deduce excessive losses. When trading for short-term profits, tighter fixed stops are needed, especially when scalping where trades can last for just seconds.
Although you might not want to hear it, you just need to test again and again, so that you can discover the most profitable place(s) to put your stops. You can do this risk-free through using demo accounts, which most Forex brokers can provide on demand.
Remember, fixed stops are only one type of stop and stops in general are only one single aspect of Forex trading tactics. You should always remember to look at the bigger picture and not get bogged down on every single variable during your Forex trading career. Fixed stops and stops in general are very important, but don't forget about the other important aspects of Forex trading such as analysis and strategies themselves.
In conclusion, fixed stops in Forex trading should be placed optimally to allow Forex traders to make the most profit possible. It is difficult to do this, but with adequate testing you can find profitable places to put your stops which not only allow to cut your losses, but also allow you to keep profitable trades from getting stopped out. Remember, the positions of your stops will depend on the currency trading strategy that you use. It is also important to not think about the positions of your stops too much, as there are other important aspects of Forex trading which must be addressed too.
How Forex Trading Works is a resourceful website that serves to deliver free, online content relating to Forex trading, to anyone and everyone.
No comments:
Post a Comment