When Forex traders write a set of trading rules, some of them like to determine a fixed amount of pips for their exit strategy. For example, set S/L to 35 pips. Here where a negative adventure is born.
Why would you assign a stop to this amount? Some of you may say: "Because according to my strategy plan it is safe..." This is in fact a delusion.
An experienced trader will tell you that only market can dictate rules. If you are in the market, you have to adjust to its rules.
Fixed stops are rigid, and they are culprits of early and unnecessary exits, not to mention losses.
What Forex traders should do instead of setting fixed stops:
- find logical and obvious support/resistance level;
- calculate the actual cost of the stop if placed at that level;
- estimate your target goal;
- find out risk/reward ration and whether you want to accept it;
- enter a trade or pass on.
It is that simple. From now on you may forget about your pre-defined stop rules and focus on ways to determine accurate support/resistance levels.
Clear sky and high profits!
Sunday, January 27, 2008
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