This Will Change the Way You Look at Trading
Let me start out by saying where you place a stop is more important than where you enter a trade. Understand this concept and you are on your way to changing the way you look at trading
Let’s see if this turns around the way you look at trading
• No longer look at stops as a necessary evil
• Learn to use stops to your trading advantage
Accept this fact…
We all know about support and resistance
Let’s look at them in a different easy
First, you must understand that the forex market is driven by a constant and never ending quest to run stops.
Accept this fact and you will see why it is crucial where you place your stops.
Where you place your stop…
Your goal should be to find a stop that keeps you in your position when you are right and thereby avoids getting stopped out when you have the right idea.
We have all experienced this and why I say where you place your stop is more important than your entry level. You should only get stopped out when your trading idea is not working as intended.
You may say, what’s the big deal? How is that different from what I am doing now?
Let me tell you.
Remember what I said that where you place your stop is most important.
Here is why and how it will turn your approach to trading upside down.
Most traders look at support and resistance as levels to buy and sell against.
Sometimes this is true but often they are levels where the market (i.e. algo) will look to run stops or
Game changing levels
Don’t place a stop based on how many pips you are willing to lose. Place a stop at a level that keeps you in the trade when right and if broken tells you that the trading idea was wrong. I call these game changing levels.
1) Be aware of the longer-term trend
2) Pick the side you want to trade from (on any time frame)
3) Pick out game changing stop levels
4) Entry then follows and is less important than your stop
To sum up, I used to look to fine tune my entry and miss trades. Now I am less concerned with my entry than where my stop is placed Adjust your trade size based on the stop to maintain a constant risk (e.g. 10 pip stop/EURUSD 100,000 trade = 20 pip stop/EURUSD 50,000 => same % risk). In any case, you must be okay with the risk you are taking.
Pick out the right place for a stop, know your risk in advance, and see your confidence rise.
The best program I know to identify potential market stop levels is The Amazing Trader.
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