I hope that you enjoy this forex faq session like I do. However I find that you guys seldom give your comment on forex faq post and sometime I start to think that there is no one interested in this section but ME. If you like this session, do try to give your comment below.
Here is the question from one of our fellow traders.
The trend is spot on (up/down) but my trade is always being stopped out usually after two to three candles. I can’t help thinking that we are fooled by the system. The system just ‘eat’ literally ‘digests’ your trade and then move to the direction of the trend. The question is how are we to know that the stop loss is at a level that is good enough that will not be stopped? Too high an amount will made the trade not viable (too costly).’
This is something that is pretty common among new traders. In fact, this is also something that used to happen to me when I am new to trading. As a new trader, most of us have the problem with placing stop loss and some of us may even want to give it a miss.
The reason why some of is will want to give it a miss is because we constantly find ourselves being stopped out by the market and worst of all, the price later moves in your expected direction and all you can do is to watch the profit slips away. In fact, something you may think that the market is trying to go against you.
Below is usually how I place my stop loss:
1) One place that I usually put my stop loss is recent swing high or low. If I am going short, I will usually place my stop loss at the most recent swing high. This is because if the market manages to move higher than the most recent swing high making a higher high, there is a high chance that the market will stay to move up.
2) Another place where I love to place my stop loss is at nearest Fibonacci or Pivot levels. These are levels that have strong support or resistance and if the market manages to break through it, there is a high chance that it will continue.
It sounds to me that your problem may not be just on the stop loss, you could be having a problem with your entry. Your problem could also be you have entered your trade too early. Other than targeting your stop loss placement, maybe you can start to focus on fine tuning your strategy so that you can have a better entry.
You can do that with either adjusting your indicator or observing candlestick pattern.
One thing I will also like to advice you is to avoid a trade when you find the stop loss is too costly. If you have to risk 40 pips to make a profit of 25 pips, this is not worthwhile. Therefore if you find the stop loss is too much, you would rather give the trade a miss than risk losing so much on a single trade.
Remember this: The number one thing you should do as a professional trader is to protect your capital.