Entering a trade in the Forex market iseasy.
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 thebest place to place your stop loss and take profit targets.
Hi there I've hadlots of requests over the last few months from followers asking me to givemy take on where to place your stop loss and take profit targets.
So that'sexactly what we're going to be talking about today.
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So stop loss and take profit levels- it'sgot to be the number one question.
Probably the most important, andcertainly the most account defining question out there.
(where to place yourstop loss and take profit targets).
First of all, for those that are unfamiliarwith what a stop loss, is it's basically an order that's associated with an opentrade or a position in the market and it's designed to get you out of a losingtrade at a predetermined level or a predetermined financial amount, toprevent any further loss.
That's why it's stopping any further loss, it's called astop loss.
And take profit target clearly as it says on the tin is closing out atrade and banking a profit.
Now, there are, I think two schools of thought as towhether you should be using a stop loss at all.
For me, and this is my personalopinion, you should always be using a stop loss.
Especially when you'restarting out in training even if the stop loss has the sole intention orprotecting the account for one of those Black Swan events.
One of these eventsthat was just not expected.
As we know, trading is a very emotional business andit's our lack of discipline that causes most traders to fail.
I've often heardthe educators out there, I've got many books up there, saying the same.
Youshould 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 situationsthat adversely affect your emotions.
So let's assume, now, you've done youranalysis.
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 takingthe trade.
Now, if you don't know what the risk is, if you haven't placed a stop, youhave no control over that risk and therefore, the emotions can kick in andtake over.
And remember it's the emotions that end up blowing most accounts.
Now, ifyou've been following me over the last few years or so, you'll know that I keeptrying 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'sbeing back tested and has been proven in the past.
Now, if the strategy rules are met and you enter a trade in a particulardirection, because the statistical probability is in your favor, but thenthe trade turns against you and doesn't perform as expected, the idea is youshould be cutting your losses and moving on.
Basically, the premise of the trade isover.
So why would you be still in that trade? Now, before we head over to thesescreens, let me say this, no one likes losing money in the markets.
Doesn'tmatter who you are.
I certainly don't like losing money in the markets, butI've learned to accept it.
Losses are part of our business.
In thesame 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-losswhere you don't expect to get stopped out, of course.
It's not gonna be possiblewith the time but using some basic skills can prevent many stop losses fromhappening.
In the same way, that the supermarket won't be loading up withfresh turkeys and cranberry sauce in the middle of summer because he knows that'snot gonna work.
So, let's now jump on to the screens and I'll show you exactlysome tricks on how to place stop losses and take profit targets.
Come on! Okay, sohere we are on the screens.
Now, if you've been following me for the last coupleyears or so indeed.
If you are already a member of the Forexsgnals.
com's TradingCommunity, you'll know that I always encourage traders to view the marketsusing the top-down analysis approach.
What do I mean by that? Well, what Ibasically 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 atleast the timeframe above and preferably the second time frame above, as well.
Sofor example, if you're looking to trade in the 1 hour time frame, you should haveconfirmation on the 4 hour and the daily.
If you're looking to trade onthe 15-minute time frame chart, then you'll have confirmation on the 1-hourand perfectly the four-hour as well.
And I use the exact same analysis approachwhen looking to decide where to place my stop loss levels and my take profittarget levels.
Also have a rule that will leave no ambiguity as to where theseshould be accurately placed.
So let's have a look now.
Okay, so you can see hereon my charts, we're gonna be looking at the Australian Dollar against the NewZealand Dollar, and I have three charts for even time periods on my screen.
Overhere, on the right, we have the daily, then we have the 4-hour, and then we have mytrading screen which is going to be the 1 hour time period.
Now, the first thingthat we need to do is drill up to the higher time periods and plot in our keylevels of support and resistance.
Now, these are going to form the basis ofwhere 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'sstart off by looking at the daily.
Now, the other knack that I use whenplotting mysupport and resistant line levels, is to use the line chart.
Theline chart ignores the price extremities of a particular time period.
It only looksat 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 pointsand we place it in our levels of support and resistance , like this.
Now, once you've done that on the highertime frame, you drill up to the next time frame -up from the trading screen or thetrading time frame that you're involved in.
So now, we'll be looking at the fourhour and do exactly the same.
Now, these support and resistance lines.
These arenot set in stone, that's why I put them on a broken line just to remind me thatthey're not insurmountable levels.
They're just key levels that we need tobe watching, and the knack is not to place too many lines.
Too many lines ofsupport and resistance will mean that you'll be paralyzed, and will be takingany trades at all.
Now, once you've spotted your support and resistance linelevels on the higher time frame charts, you go back to your trading screen.
Thisis where you'll be taking your signals form.
So, in this example, it's going to bethe one hour chart.
Now, you'll notice here, in the top left, I have applied thisrisk-management tool from forexsignals.
The Risk Money Management tool is freeto all our members.
Download this, plug it in to your platform, it's going tocontrol the risk for you.
You can see here the maximum risk oneach trade.
I've set it at half percent and then of course, you can move the stoploss levels and the take profit target levels, and indeed the yellow line is theentry 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 whatmy strategy is saying, for example.
So I'm waiting to a pullback.
We see a nicelittle pullback in now, and I'm looking to enter this trade.
So where do I placemy stop? Okay so I drill up now to the higher time frame and look for the keylevel that could indicate if it reaches that level.
That this pullback could endup to be a reversal, the premise of my trade will be over, I want to exit.
So yousee here the next level of resistance to the upside comes in at this level hereat 106.
Now, I'm not going to use the textbook standard 2-pip buffer.
What Iuse when I'm placing my stop loss levels is a buffer of 180 hour on the tradingchart 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 wouldmake my stop in at 107.
So, that is now where my stop will be placed.
Comes in at107.
02-which is about there, and my profit target is going to be set inaccordance with my strategy rules.
I will always look at major support andresistance again on the higher time frame to make sure that my take profittarget isn't just a few pips, the other side of a key level.
Again, back to thehigh time period chart, I can see that I have no real support to worry about onthe 4-hour.
I can look on the daily and see my next level of support comes in at105.
77, so I can put my take profit target in just above there.
I can lookhere on the risk management tool.
And seeing that I'm getting better than 1-1 risk reward ratio that fits in with my strategyso I will be placing that trade and this tool is going to work out the exact lotsize for me, as well, And that places the trade for me.
Now, this is just a demoaccount so I will not worry about that, but I'm just giving you an idea ofexactly how this risk management tool works.
And how I decide where I place mystop 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 themajor support and resistance levels and using a buffer of 180 hour on the tradingtime period that you are using.
Always ensuring that you're getting at least aone-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 rangetrading if the market doesn't behave as a strategy intended, then it's time tocut out using the key levels of support and resistance, plus the buffer of 180 hour ensures that if you get stopped out, chances are thetrade premise was over.
Okay so hope you found that useful.
Hopefully, now you're notgoing to get stopped out as much as you did in the past using a buffer and thehyatt time frame analysis .
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com as well.
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Until the next video, happy trading andgood luck!.