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GreenForexTrading.com
ForeX forX-tra Gr€€n
Hi everyone,
This letter originally exclusively for those members in the Live Forex Trading Room is being sent for those who take benefit from the Daily Newsletter Trades.
In this e-mail I am going to give you my review of Stop loss, strategy, placement and execution. First off, from the website with notations for the Live Forex Trading Room in RED Italics :
Always use a Stop Loss and use it the right way.
Stop Loss – Should we use a physical stop loss? Should we be using a mental stop loss? Where the stop loss should be placed?
What is a Stop Loss? SL is an order that gets executed as a safety net for us and basically means that if price reaches that point, we need to immediately get out of the trade, or close the position we are in. Of course that will lead to a loss. Now this loss is a calculated number before we got in the trade and it depends on money management, strategy and of course the risk amount that we are capable to handle.
The reason a stop loss should be determined before we get in a trade and respected, is that when we are in the trade and emotions, fear and greed kick in, it will be harder to determine and a lot of times can make us ride a loss for too long. So, where do we place the stop loss?
- Stop loss should be placed at the point where our strategy is no longer valid. Otherwise just having a stop based on money management (1% or 2% or whatever) can endanger the trade and maybe we should not be in this trade if it requires a bigger stop loss that our account can handle. Or maybe we need to get in with less position so that we are safe and have the stop placed accordingly. As a rule I do not use market orders (too many ways for a broker to take your pips) and you will need to use limit orders with mental stops (stops in your head that if a defined price level is hit because a trade goes against us...yes it does happen) that you execute an entry to close the trade. Hard stops, those placed with a broker are used to trade through reports.
- During volatile times, a hard stop loss will hurt us more than it will help. A stop makes no sense if it is too tight. Why take a 20 pip loss just to watch the trade go your way after that. Of course this takes training and market observation and remember that the market acts like an elastic, a major spike that happened during a few seconds (that may get your stop if you have it in place), will usually pull back to give you an opportunity to close the position, (See next bullet item below as to why that is) if indeed it’s justified. You don’t want to keep letting it go against you hoping it will reverse (that is how people blow up their accounts) but you want to be smart about it and don’t get spiked out (if you don’t have to be. Some brokers will hunt your stops as well, but that is another story (clarified in the STOP Newsletter sent as a reminder once a month or so).
- Use a stop loss after your trade starts developing and you can safely place it (behind a congestion area, or a big support), and this way if your Stop Loss and Target Price is in place you can easily leave your desk and enjoy life as it should allow time to manually enter your stop with a broker when using mental Stops; if this pre-defined congestion zone is entered.
- Trailing Stops – Automated or not, they can work for you or against you. They will sometimes help you ride the trend but sometimes, if used in the wrong amount, trailing stops can just cut into your profit at the retracement time, so be careful how you use them and adapt them to the particular pair you are trading.
- In the Live Forex Trading Room stop prices/levels will be given with the initiation of any trade. Like with the initiation of any trade, an alarm will usually sound if the stop level is near or reached during a trade. If that happens it is up to the member to determine their exit at that point. I understand slippage happens but traders should remember that stops are designed to be traded around allowing time to exit for the most part at that pre-stated price point using limit orders. In the case for fast moves, order and stop execution should be automatic with little emotion.
- Learn to recognize spike reversals on 1-min time frames as this will allow greater flexibility to either get out of a trade at a better price or stay in the trade if it is still deemed valid.
Also remember:
Keep in mind, I will not be sending real time e-mails, SMS or anything like that, those are real time trades and I trade my own account.
Also keep in mind that the stop loss and take profit levels may be different in my account due to the fact that not everyone is trading with the same account size and leverage; so if a trade goes against us I will probably recommend a stop loss of average 20-30 pips in the room and may keep my trade open longer because I am in a position to take more heat and I am able get out of a trade in a different way. In my account I will often double up a position (please forget about what many books tell you to do) and I will be able to get out without a loss but that’s a different story.
I will usually enter 1-3 trades per session, and stay in anywhere from couple minutes to a few hours. There will be some long term trade recommendations that I will call but that will not happen every month and those are trades where I am looking for a big moves, Monster Trades of 500-1000 pips, and I usually will only call the direction and it will be up to everyone as far as how the trade will be managed depending on your account size, leverage and risk you are willing to take.
Enjoy trading and good luck everyone!
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Mr. Green
Risk Warning! Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. Past performance is not indicative of future results. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts. All information posted on this website is of our opinion and the opinion of our visitors, and may not reflect current situations and occurrences. Please, use your own good judgment and seek advice from a qualified consultant, before believing and accepting and acting upon any information posted here or on this website.
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