Entering a trade in the Forex market is easy. All you need is one of those, and a couple of those, and away you go! But it’s exiting the trade that counts. So today we’re going to talk about the best place to place your stop loss and take profit targets. Hi there I’ve had lots of requests over the last few months from followers asking me to give my take on where to place your stop loss and take profit targets. So that’s exactly what we’re going to be talking about today. Before I forget, let me remind you to subscribe to the channel, in case you don’t already do so. That way, you’ll be able to watch all my past videos; all my educational material in one spot. Also don’t forget to hit that little bell notification. That way, you’ll be notified the moment I send out my next video. Don’t forget to follow us on Instagram and of course Facebook if you follow us on Facebook you can watch me stream live every Monday 2 PM London time where I map out trading opportunities for the week ahead.
So stop loss and take profit levels- it’s got to be the number one question. Probably the most important, and certainly the most account defining question out there. (where to place your stop loss and take profit targets). First of all, for those that are unfamiliar with what a stop loss, is it’s basically an order that’s associated with an open trade or a position in the market and it’s designed to get you out of a losing trade at a predetermined level or a predetermined financial amount, to prevent any further loss. That’s why it’s stopping any further loss, it’s called a stop loss. And take profit target clearly as it says on the tin is closing out a trade and banking a profit. Now, there are, I think two schools of thought as to whether you should be using a stop loss at all. For me, and this is my personal opinion, you should always be using a stop loss. Especially when you’re starting out in training even if the stop loss has the sole intention or protecting the account for one of those Black Swan events.
One of these events that was just not expected. As we know, trading is a very emotional business and it’s our lack of discipline that causes most traders to fail. I’ve often heard the educators out there, I’ve got many books up there, saying the same. You should always trade without emotion. That’s great, but it’s not only possible. Certainly, for me anyway. But what I think you can do, is avoid those situations that adversely affect your emotions. So let’s assume, now, you’ve done your analysis. You’ve placed your trade, you’ve already accepted the risk on the trade. If you can’t accept the risk in the first place, then you shouldn’t be taking the trade. Now, if you don’t know what the risk is, if you haven’t placed a stop, you have no control over that risk and therefore, the emotions can kick in and take over.
And remember it’s the emotions that end up blowing most accounts. Now, if you’ve been following me over the last few years or so, you’ll know that I keep trying to drill into the traders, the importance of having a trading plan. Which as you know, is basically a set of rules fitting around a strategy that’s being back tested and has been proven in the past. Now, if the strategy rules are met and you enter a trade in a particular direction, because the statistical probability is in your favor, but then the trade turns against you and doesn’t perform as expected, the idea is you should be cutting your losses and moving on.
Basically, the premise of the trade is over. So why would you be still in that trade? Now, before we head over to these screens, let me say this, no one likes losing money in the markets. Doesn’t matter who you are. I certainly don’t like losing money in the markets, but I’ve learned to accept it. Losses are part of our business. In the same way that a supermarket; it doesn’t like to have to throw out produce, as it passes the sell-by date but it has to. It’s part of the loss of running the business. But the idea of using a stop loss is to place the stop-loss where you don’t expect to get stopped out, of course.
It’s not gonna be possible with the time but using some basic skills can prevent many stop losses from happening. In the same way, that the supermarket won’t be loading up with fresh turkeys and cranberry sauce in the middle of summer because he knows that’s not gonna work. So, let’s now jump on to the screens and I’ll show you exactly some tricks on how to place stop losses and take profit targets. Come on! Okay, so here we are on the screens.Now, if you’ve been following me for the last couple years or so indeed. If you are already a member of the Forexsgnals.com’s Trading Community, you’ll know that I always encourage traders to view the markets using the top-down analysis approach.
What do I mean by that? Well, what I basically mean is, if you’re trading off a particular time frame- be at the 1 hour, of the 4 hour, the daily, you should always be looking for confirmation on at least the timeframe above and preferably the second time frame above, as well. So for example, if you’re looking to trade in the 1 hour time frame, you should have confirmation on the 4 hour and the daily. If you’re looking to trade on the 15-minute time frame chart, then you’ll have confirmation on the 1-hour and perfectly the four-hour as well.
And I use the exact same analysis approach when looking to decide where to place my stop loss levels and my take profit target levels. Also have a rule that will leave no ambiguity as to where these should be accurately placed. So let’s have a look now. Okay, so you can see here on my charts, we’re gonna be looking at the Australian Dollar against the New Zealand Dollar, and I have three charts for even time periods on my screen. Over here, on the right, we have the daily, then we have the 4-hour, and then we have my trading screen which is going to be the 1 hour time period. Now, the first thing that we need to do is drill up to the higher time periods and plot in our key levels of support and resistance. Now, these are going to form the basis of where we’re going to place our stop loss levels. The higher time period charts, normally the support and resistance levels are much more respected.
So let’s start off by looking at the daily. Now, the other knack that I use when plotting mysupport and resistant line levels, is to use the line chart. The line chart ignores the price extremities of a particular time period. It only looks at the closing price and I’m looking for levels on the daily chart, that *inaudible* a couple of times at least, or indeed big swing turning points and we place it in our levels of support and resistance , like this. Now, once you’ve done that on the higher time frame, you drill up to the next time frame -up from the trading screen or the trading time frame that you’re involved in. So now, we’ll be looking at the four hour and do exactly the same. Now, these support and resistance lines. These are not set in stone, that’s why I put them on a broken line just to remind me that they’re not insurmountable levels.
They’re just key levels that we need to be watching, and the knack is not to place too many lines. Too many lines of support and resistance will mean that you’ll be paralyzed, and will be taking any trades at all. Now, once you’ve spotted your support and resistance line levels on the higher time frame charts, you go back to your trading screen. This is where you’ll be taking your signals form. So, in this example, it’s going to be the one hour chart. Now, you’ll notice here, in the top left, I have applied this risk-management tool from forexsignals.com. The Risk Money Management tool is free to all our members. Download this, plug it in to your platform, it’s going to control the risk for you. You can see here the maximum risk on each trade. I’ve set it at half percent and then of course, you can move the stop loss levels and the take profit target levels, and indeed the yellow line is the entry level as well. So you see here on this chart we’ve got a descending trend. The the trend is moving down, I may wish to enter this trend to the downside that’s what my strategy is saying, for example.
So I’m waiting to a pullback. We see a nice little pullback in now, and I’m looking to enter this trade. So where do I place my stop? Okay so I drill up now to the higher time frame and look for the key level that could indicate if it reaches that level. That this pullback could end up to be a reversal, the premise of my trade will be over, I want to exit. So you see here the next level of resistance to the upside comes in at this level here at 106.90. Now, I’m not going to use the textbook standard 2-pip buffer. What I use when I’m placing my stop loss levels is a buffer of 180 hour on the trading chart that I am on. So for example, you’re looking back over here to the left you’ll see that the ATR on the one hour is 12 pips.
So 12 pips buffer would make my stop in at 107. 02. So, that is now where my stop will be placed. Comes in at 107.02-which is about there, and my profit target is going to be set in accordance with my strategy rules. I will always look at major support and resistance again on the higher time frame to make sure that my take profit target isn’t just a few pips, the other side of a key level. Again, back to the high time period chart, I can see that I have no real support to worry about on the 4-hour. I can look on the daily and see my next level of support comes in at 105.77, so I can put my take profit target in just above there. I can look here on the risk management tool. And seeing that I’m getting better than 1- 1 risk reward ratio that fits in with my strategy so I will be placing that trade and this tool is going to work out the exact lot size for me, as well, And that places the trade for me.
Now, this is just a demo account so I will not worry about that, but I’m just giving you an idea of exactly how this risk management tool works. And how I decide where I place my stop loss and take profit target level. This is just a trend following trade. Same works for counter trend as well. Looking at the higher time frame at the major support and resistance levels and using a buffer of 180 hour on the trading time period that you are using. Always ensuring that you’re getting at least a one-to-one risk reward ratio which you can do by using this tool here.
Remember, when trading a strategy, the trend continuation counter trend or range trading if the market doesn’t behave as a strategy intended, then it’s time to cut out using the key levels of support and resistance, plus the buffer of 180 hour ensures that if you get stopped out, chances are the trade premise was over. Okay so hope you found that useful. Hopefully, now you’re not going to get stopped out as much as you did in the past using a buffer and the hyatt time frame analysis . If you liked my video give me a thumbs up, if you didn’t give me a thumbs down.
Don’t forget to leave a comment and of course don’t forget to subscribe to my channel. If you don’t already do so, follow us on Instagram, and indeed, Facebook, and of course if you follow us on Facebook you can watch me stream live every Monday 2 PM. London time-absolutely free to attend. Well I’ll be discussing market opportunities for the week ahead. If you want to try out this Risk Management Trading tool, do come and join us at Forexsignals.com as well. Could also see me stream live, as well as my Co-streamers throughout the trading week.
Until the next video, happy trading and good luck! .
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Entering the trade in the forex market is as simple as clicking the “buy” or “sell” button. Finding a way to exit the forex trade, whether it goes in your favour and you want to exit in profit or the market turns against you and you need to get out before the damage on your account becomes substantial – this video is for you!
Let’s dive in and look at the best way to exit the markets!
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