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It has been stated many times that is not important where you enter a trade, but where you exit that really counts.  This is very true in the fact that entry points can be profitable anywhere, if you get out at the right time.

 

Using technical analysis to mark your exit points will make your trading strategy that much more accurate.  Good stop losses will make it much easier to reach your trading goals and stop the hazardous cycle of drawdown and instruct you to improve your trading.

 

Below horizontal support

 

It would be foolish to place a stop loss right at a horizontal support line.  Chances are that the security will bounce off the support line and continue upward slightly.  Many new traders, in an attempt to be ultraconservative, will place their stop losses right on top of horizontal support.  Horizontal support is one of the strongest support lines so putting your stop loss directly on the line makes simply zero sense.

 

Oscillator support

 

When the oscillators, such as the MACD or RSI, are reading very low numbers, it would be wise to place your stop loss closer to the current price.  The chance that a new wave of momentum will carry the price higher is greater, and thus, assuming more risk on a less risky investment would increase your chance for larger losses.  Technical analysis oscillators are very good at picking bottoms; use them as a way to gauge future support areas.

 

Between a gap

 

Gaps are often underestimated for their power.  Strategies for gapping up work very well on the regular charts, as do strategies for gapping down.  Gaps usually represent horizontal support, even though they might work with slanted trendlines.  Placing stops below a gap will lessen the chances of becoming stopped out, which will inevitably improve your trading.

 

200 period moving average

 

The 200 period moving average works very well as a support and resistance line.  Arguably, the most used moving average and possibly technical analysis indicator, the 200 day moving average works very well with the basic trading fundamentals.  If the price is above the 200 day moving average, anticipate plenty of support after a massive drop.

 

Bollinger bands

 

If you don’t use Bollinger bands for any other purpose than support and resistance, you’re still getting your money’s worth.  Bollinger bands, even in the default setting, are great as support and resistance due largely to the numbers of people who use them.  Placing a stop loss below the current bottom Bollinger band line is a good way to protect yourself from an untimely exit.  Indeed, Bollinger bands are one of the ideal technical analysis assets available.

As a foreign currency trader, you’re gonna lose when you take these trades.  You’re gonna to lose often, too.  You’re going to get exhausted of losing.  You’re going to begin thinking maybe you know nothing about trading.  You’re going to question your capability all together and think about giving up.  Don’t. If you know you’re going to lose often in advance, why on connector would I tell you these are no-brainer trades you must take to skyrocket the equity in your Forex account?  It’s simple:  reward-to-risk.

Small, strategically-placed stop losses are the single most important key to your Forex trading success.  Why?  Because your success is always tied to the stop loss.  How much you can make on a trade is directly tied to that stop loss.  I love to show a tiny math with my writing so let’s get into this.

The basics you need to know are as follows:  statement base equity is $2000, you’re going to place a trade with a 100-pip stop loss and a take profit of 120 pips, and finally, you’re going to risk 2% on this trade or $40.  That means that apiece pip is worth $0.40.  Your potential acquire from this trade is $48.  Cool enough.  Let’s state you win this one.  Awesome.  You’re now rockin’ with a $2048 Forex account.  Life is good.

Now, let’s look at a series of trades with nice, tight stops.  You’ve got four trades here we’ll look at.  These all have 12-pip stops with, say, 60-pip potential.  These trades are not out-of-the-ordinary nor are they impossible to find.  Keep following me.  The juicy stuff is coming up right now.

The first three trades stop out.  Let’s look at the math.  By the way, I’m starting this one out with a $2000 statement just to compare the two sets of trades equally.

The first trade has a 12-pip stop at 2%.  That means apiece pip is worth $3.30.  You  always, always, always round down to the nearest dime anytime you’ve got under $100,000 in your Forex account.  You stopped out so you multiply that by your 12-pip stop loss and you’re out $39.60.  The next trade is worth 2% again, and since these trades could all be happening simultaneously, we’re going to make things simple and stick with the $2000 equity for all of them.  These pips are worth $3.30 like before.

Now your statement is at $1920.80 and you’re feeling uneasy about taking the next no-brainer, small-stop trade.  But, you do it anyway because some chic titled Caden told you to.  Here we go.

You’re risking 2% yet again and you’re still at $3.30 per pip.  Well, crap, this one stopped out, too.  You’re down $39.60 for a total of $118.80.  That’s about 6% of your statement gone in a short while.  Ugh, do you really have to take all of these no-brainer, small-stop trades?  Haven’t you suffered enough?

Yes, you do and no, you haven’t.  They are no-brainers.  That means you do it.  Period.  It’s a rule all foreign currency traders should follow yet so few do.  Perhaps that’s why only about 3% of Forex traders ever make any real cash in the foreign currency market.  Hmm…food for thought.

Let’s trade.

The final trade of the day is the same as the others:  12-pip stop with a 60-pip take profit.  This one wins!  Now, let’s do the math and figure this bad boy out.

You’re risking 2% again so your pips are $3.30 each.  You hit your take profit at +60 pips.  I don’t know about your math skills but mine tell me that’s a win of $198 on that stupid, no-brainer, small-stop Forex trade.  Let’s look a tiny deeper.

You won a 100-pip stop loss trade for 120 pips.  You got $48 and were happy with that.  Awesome…or is it?

You just took a royal bath with three losing trades in a row.  You were down $118.80 and feeling like a loser until you won that final trade.  After calculating your returns on those 4 trades which were a whopping 75% loss-rate, you’re up $79.20—far more than you prefabricated on that 120-pip acquire earlier.  Remember, that one was only worth $48.

You know what’s really cool?  You could even lose two more trades of the same type as above, win the 6th trade, and be at $2000—exactly what you started with!  That’s an 83.3% loss rate to come out at break even.  Are you kidding me?

This is just a small but vital secret you must always remember as a foreign currency trader.  The power of the small stop loss is huge, my friend.  Trade it like a organisation and it’s simple to watch your statement grow—and grow—and grow—and grow.

You get my point.  Trade it.