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!