The most comprehensive Forex stop-loss strategy all here!
Youve started a trade, what should you do now? What Forex stop- cashbackforexbtc strategy should you use? If you dont know what stop-loss strategies are available, cashback forexs okay - youve come to the right place! Today, well explore various Forex stop-loss strategies that can be used to minimize r forexcashbackcalculatork Eastforexcashback maximize returns when trading in higher time frames, and one of my favorite strategies will help you sleep at night. Some of the content in this course will make even the most seasoned trader think differently and believe me, things will get very interesting after the entire course! Lets get started! First the important thing ...... This course assumes that you are already familiar with the pin candle trading strategy and the embedded candle trading strategy If you are not familiar with these two strategies you may want to take a closer look at them and come back to this course later to get a better understanding of this course as we will be using these two forex trading strategies as examples in this course One last thing if you are not familiar with what a stop loss order is, go ahead and learn about it Initial Stop Loss Settings Initial stop loss settings depend on the trading strategy being used and there are obviously some personal preferences when making the relevant decisions, but there are some common settings for stop loss positions Pin Candle Trading Strategies For Pin Candle trading strategies, the stop loss should be set above or below the end of the pin candle, both bull and bear pin candles if This is simply feedback from the market that the pin candle is not strong enough. For the embedded candle trading strategy, the stop can be set at two positions either above or below the high or low of the parent candle, or above or below the high or low of the embedded candle. The typical (and safer) stop loss setting for an embedded candle is above or below the high or low of the parent candlestick, similar to a pin candlestick, where the price hits the stop and the embedded candlestick is set to void. The advantage of this setting is that it provides a more favorable risk-reward ratio. The disadvantage is that after you exit the trade with a stop loss, the trade may be set to go in the direction you expected. As mentioned earlier, a safer stop position above or below the high or low of the parent candle is ideal for more volatile pairs Now that we have a good idea of where to set stops, what stop loss strategies can be deployed if the market moves in the expected direction, lets take a closer look at the "non-interference "Forex stop-loss strategy Can you guess what this strategy does not involve? You guessed it, hands! Well, I guess it involves manually setting a stop loss, but once it is set, it is completely hands-off Some people call it a "set and place" strategy, the principle is the same In this strategy, you set a stop loss and let the market run its course The key is to avoid the temptation to adjust the stop position when trading This strategy has several advantages, however not without flaws But lets look at the advantages first: The advantages reduce the chance of getting out early and help reduce emotional trading which is extremely easy to deploy by keeping the stop loss at a safe distance and not intervening in a way that reduces the probability of getting out early after moving the stop loss too early and just watching the market run in the direction you expect, we all know how it feels This forex strategy helps avoid emotional trading because there is no intervention after setting Once you enter a trade, set a stop loss and just sit there and let the market run its course it is extremely easy to deploy because this stop loss strategy is a one-time act you just set a stop loss and then you can walk away As mentioned earlier, the no-interference stop loss strategy is not without its drawbacks Lets look at the drawbacks The drawbacks maximize risk throughout the trading process The most obvious and costly drawback that may tempt you to pull your stop loss closer to your entry point is that this In other words, if you risk losing $100 per trade, you risk losing $100 the entire time you trade, from entry to exit, without further protecting your capital. Emotionally challenging, even for the most seasoned traders Capital Preservation Stop Loss Strategies No course is complete without exploring controversial capital preservation stop loss strategies Lets start with the fact that I rarely move my stop loss to break-even Why? Because the market doesnt know where you entered the trade and doesnt care about it, so why should I move my stop loss to any level? Most traders who move their stop loss to breakeven will tell you that they do it to protect their money, which may be true, at least on the surface. Everything we do in price action trading is based on price action levels, right? We use these levels because they are very important to the market as a whole, and they are visible to everyone in the world, so they work. As with most things, moving your stop loss to breakeven is not entirely a bad thing. The advantage of eliminating the risk of an established trade is that there is no need for market analysis. This is because, as mentioned above, no market analysis is required and you always know exactly where to set your stop loss. As you may have noticed from the introduction to this article, Im not a fan of breakeven stops and heres why: Disadvantages Using arbitrary levels hinders your chances A lazy approach As mentioned above, moving your stop loss to the break-even point uses an arbitrary level - your entry point - and I wont go into detail on this again because Ive already covered this in the introduction How does the break-even stop hinder your chances of success? By moving your stop loss too quickly to the break-even point, you are preventing these integration factors from working in your favor. Because it eliminates the need for market analysis and also allows traders to trade emotionally Let me explain ...... When a trader moves their stop loss to breakeven, they are moving to a level that they have determined to be important, but the market does not see it as important This means that only this trader believes that the level in question is important, and we all know that this has a There is a direct personal relationship, so when a trader stops at the relevant level, he is more likely to be personalizing the stop loss In contrast, a trader who uses the price action level to confirm the stop loss position is using the level that the market recognizes In other words, "If the market hits my stop loss level, I dont want to take this trade anymore" This takes the focus This takes the focus away from the traders decision and puts it on the level determined by the price action So, how do we protect our money and use the price action level as our edge?The 50% Stop Loss Strategy (my favorite) The 50% Forex Stop Loss Strategy is a bit of a misnomer Yes, the strategy reduces risk by 50%, but not necessarily by exactly 50% Let me explain Before I dive in, I would like to point out that, as opposed to the A non-interference stop loss strategy, this stop loss strategy will result in more losses The advantage is that we are now starting to use the market to understand how to protect money using a 50% stop loss strategy on a pin candle setup Lets say you enter a bullish pin candle at the daily close (entry) The next trading day, the market closes slightly above your entry point Not moving the stop loss to breakeven or close to breakeven, we can Once the market closes below your entry point the next day, we can use the session low to hide the stop loss. This allows us to reduce the risk by 50%, but still use the price action level of the previous sessions low. The first and most important advantage of the 50% Stop Loss strategy is that it cuts the risk in half. If you risk $100 per trade, once the market moves in the expected direction, you can cut your stop loss by 50% and reduce your risk to $50! Because the 50% stop loss strategy uses price action levels, the market has a lower probability of hitting our stop loss This is because, we use market highs and lows to protect the stop loss, the exact opposite of a breakeven stop As mentioned earlier, the 50% stop loss strategy gives the market room to maneuver Unlike a breakeven stop, the 50% strategy leaves room for the market to run, which is exactly what our trade setups need to appear 50% forex stop loss What are the disadvantages of the strategy? Unlike a break-even stop, a 50% stop strategy leaves a position at 50% risk Some traders may be able to live with it, but some cannot. For example, if the market closes near the previous sessions low on the second trading day (as in the example above), then a 50% stop loss strategy may not be effective because we have moved the stop level too close to the current market price, in which case it may be wiser to leave the stop loss at its initial position. In my opinion, it is more risky to move the stop loss to 50% when trading against an embedded candlestick than against a pin candlestick. At the close of the next trading day, the stop loss can be moved above or below the high of the embedded candle, assuming of course that the market conditions are right, see the chart below: At the close of the embedded candle, we can move the stop loss from above the high of the parent candle to above the high of the embedded candle, which will reduce the stop loss distance of 100 basis points to 50 basis points. The decision to move the stop loss from above the high of the parent candlestick to above the high of the embedded candlestick may provide further confirmation that we are primarily looking at this short-term level breakout to the downside as another reason to close the distance between the stop and the entry point Lets briefly restate that so far we have explored where to set the initial stop loss and 3 stop loss strategies, and once the market starts to move in the desired direction, the next strategy will be useful to track the stop loss since the market is really starting to move in your favor. How do we protect our capital while providing enough room for the market to run in your favor? Before we dive into the trailing stop strategy, I would like to point out that there are two basic ways to implement this type of stop loss The first is the automated way, which tracks quotes by a East forex cashbackecific number of basis points Most trading platforms currently offer this feature The second way is the manual trailing stop The two ways of trailing stop are explained below, but this section will only focus on the manual way Why, you may ask? Because similar to the breakeven stop, the automated trailing stop is based on an arbitrary level, not a significant level in the market. Set at 1.375 So, what about the 1.375 position in terms of other price action levels in the EURUSD? Who knows? ...... Here is the problem: the level of your trailing stop is less meaningful than the level of the price action around your trade setup. Now that we know where to set the initial stop loss and how to reduce some of the risk in the trade and lock in profits, lets put it all together. For traders who have read about pin candle entry and exit strategies, you know that I like to enter a pin candle trade on a 50% retracement. retracement into a pin candle, use a 50% stop loss strategy and then trailing stop below the low, what would happen? Note: This is actually a trade I made a while ago on the USDJPY daily chart and similar to my other trades, I will explain the setups and execution step by step and it stands to reason that not every trade will follow this process perfectly, but it doesnt have to because the profits you can make on such setups will more than pay for the ones that dont work perfectly. Because now we get to the actual data at ...... I entered the daily pin candle at the 50% retracement (green line), 35 basis points away from the initial stop loss My initial profit target was 150 basis points, so the risk-reward ratio was 4.3x If you are not familiar with risk-reward ratios, you can check out the course, it is very simple although I focus on on the money risked vs. the risk-reward ratio, we will use 2.5% as the percentage of the trade risked, which is actually very close to the amount I actually risked so 2.5x4.3 = 10.75%, which is the potential gain on that trade and still increasing, so to wait for the next day (candle #2), my long position was filled with my stop loss 35 basis points below me as soon as the trading day ended, I moved the stop loss to the #2 position below the days low which immediately cut my risk by more than half Why did I do this? My thinking was that the second trading day had formed an embedded candle, so the market was circling higher and I thought that if there was a possibility of an upside, it would not fall below the low of the second days embedded candle. Such price action signals can also reveal a great deal of market information. A strong close on the 3rd session was the deciding factor in removing my 150 basis point profit target and instead trailing stops below the low of each session. The risk-reward ratio of 6.5x is 230 basis points, so what is the total percentage of profit? I initially risked 2.5% and ended up with a risk-reward ratio of 6.5x profit of 2.5x6.5=16.25% 10 days of simple trailing stops to get this kind of performance is still not bad Let me be clear, there is no boasting or showboating in this either, it is just to showcase the use of a combination of a pin candle trading strategy, the right risk-reward ratio and a strong forex stop loss strategy The power is finally ...... This is the icing on the cake Once you have learned the skills of identifying key levels, determining price action strategies, and using appropriate risk reward ratios to integrate them to your advantage, then appropriate stop loss strategies are all you need to take your trading to new heights There is nothing complicated about this, no proprietary indicators or confusing algorithms we all see the same information all it takes is time, discipline and determination to get through the tough times, I know you have these factors because you have been through this very long course I hope this lesson has given you an understanding of how to deploy a stop loss strategy or how to refine the stop loss strategy you are currently using