In this week forex faq session, I will be answering this question from one of our valuable member of this blog.
Would you please explain where to place stop losses with trend strategy?
When answering this question, it also applies to other trading strategy such as breakout trade, range trading and so on. The reason is because no matter what strategy you are using, you definitely have to make use of trend line break to enter your trade.
Knowing how to enter a trade is important but knowing when to exit your trade or end your wrong trade is even more important.
Below are some of the ways I place my stop loss:
1) Most recent swing high/low – This is the method that I usually use to place my stop loss. Let says that I enter a SHORT trade after a valid trend line break, I will always place my stop loss above the most recent swing high.
If I enter a LONG trade after a valid trend line break, I will then place my stop loss below the most recent swing low.
2) Fibonacci Levels – The next method of placing stop loss will be making use of the Fibonacci levels, as the Fibonacci levels are usually levels of strong support and resistance, I will usually place my stop loss above the nearest level if I am going SHORT or place it below the nearest level if I am going LONG.
3) Pivot Point Levels – Similar to the Fibonacci levels, the pivot points are also levels of strong support and resistance. If you are a user of pivot points, you can use them to place your stop loss and the way you do it is the same as the way I do it with the Fibonacci levels.
4) Major support and resistance – The major support and resistance levels that I am referring here is those support and resistance on the higher time frame. Do note that the higher the time frame, the more powerful is the support and resistance.
If you enter a trade close to a major support or resistance levels on a higher time frame, you can then place your stop loss above it if you are going SHORT or below it if you are going LONG.
The above are 4 ways you can place your stop loss and I hope that you will find them useful for your trade. As for the amount of stop loss, it depends on your risk appetite and I will not give my suggestion here.
If you have anything to share, do feel free to give your comment below as your input is definitely valuable to everyone here.