Forex Stop-loss & argets

When Should I Sell a Short Position in Forex Trading?

Interestingly, this question assumes one knows when to go long and when to stay put. The notion that some assets cannot go down to zero spurs the idea going long is safer while shorting has a cap – when the assets become worthless or at zero. This might be true to one type of trading, with penny stocks and with altcoins in the cryptomarket. The strategy is about holding cheap assets that are about to get noticed sometime in the future. Depending on how you diversify your strategy, this day may never come. Shorting what is already cheap does not make sense, right?

It depends on how you make that assessment and on what timeframe. Expecting gold, for example, to rise in the next hour makes it cheap to buy currently, it is irrelevant if it went to record highs in the current year. Stocks especially are regarded as the assets where investors buy and hold for a longer period, for a few years for example, on the other side, shorting on such a long period is very rare. Certainly, there is a difference, but in forex, we do not have such assets or currencies that can justify preference to go only long. We are not going to discuss how to get a signal to go short here, it is something traders have to develop along with their strategies and systems, it is a very broad and lengthy subject.  

Let’s take a look at the USD. The chart below depicts the USD basket movement (against the other 7 major currencies) for the last 10 years. 

To some investors holding the Dollar proved to be a good investment if we compare it to other major currencies. However, a stock index such as the S&P 500 shows a much better proposition:

Indexes are derived and calculated based on the stock’s aggregated value, in USD. Concerning other currencies, the USD didn’t lose any value but compared to the performance of the stocks, it is evidently short. Therefore forex provides just as good opportunities to short as to long a certain currency. We should keep in mind we can short one currency by holding other assets whose value is expressed in that currency, in our case the USD. 

If we strictly limit our trading to fiat currencies, we are actually looking at the money flow, which can always go in different directions and therefore provide short and long trading opportunities. Currencies went away from the Gold standard and now have complete freedom how they can change value. Most traders think there is no supply or demand in forex, no forces that can push a currency because it is scarce, in-demand, or surplus. Actually, when governments have printed so much of a currency it tends to be devalued, but not because of the surplus effect per se, but from the perception of its value. 

Traders should be familiar with the crashes, economic cycles, political events, wars, and now even pandemics that drive the bear market. They set up extreme moves and knowing how and when to short positions is probably the quickest way to get wealthy, much faster than longing for an asset for many years. One bear rush can easily cut gains made for a decade in one week sweep. Risk-off currencies such as JPY, CHF, and USD will spike so we also have the other side of the coin. Crashes come and go fast, development is long and slow. 

Now, we are going to try to pin down several actions that could lead us to make the most out of the bear markets, be it forex or equities, it does not matter as explained above. Financial advisors are mainly long, just because that is what they know about, it is very rare to hear your financial advisor to go short. Once an economic downturn comes you will be stripped. Take a look at the S&P 500 chart once more, how come the US economy went up 50% since the Trump takeover, and even “after” the pandemic it is at a new record high? Take a look at the global interest rates – around zero levels. Governments print money, so we have all the ingredients to go short here, long term.

However, take a step back, the printing of fiat can keep up, the indexes can even go higher. The turning point is when the psychological value of money disappears. This has not happened yet, and it may even come in 2030. Traders need to get out at the buy and hold safe heaven assets strategies here before the crisis comes. Be proactive and trade only swing trades if you have a setup for other, risk-on assets such as indexes or risk-on currencies. A lot of fundamental data conflicts with the real situation, when it unravels the markets may even be close for trading, leaving you trapped with losing positions. Also, use inverse ETFs if you need to short an asset that you cannot the normal way. 

Try to find contrarian traders online through social media. Twitter and YouTube is a good start. Make sure they have logic, data, and sense to back up their points. Follow their networks and diversify on angles on the same topics. Then take your own point on the economic status with your own research on this and make decisions. Some examples of notable people prop traders mention are Chris Martenson, Peter Schiff, and Ray Dalio. Some of them make predictions, some are reserved, but digest on how they interpret the economic data to understand what is going on in the markets. These mechanisms, knowledge, will be your guide when to short the right assets. 

When it comes to “when”, trust your strategies and systems. Trying to trade others’ predictions is not a good idea. Most of the predictions fail, or they are not well defined to be of any use to a trader. Never try to follow opinions like the famous “buy the dip”, “buy while it is cheap” and so on. These opinions are not aligned to you and are probably reversal traders that trade before the trend. It is very arbitrary what is cheap when it is still in a downtrend. The big shorting before the crisis is quietly announced, you may even lose once or twice (have you shorted the two fake drops in S&P 500 since 2018?) however, the huge drop in 2020 lasted only for 30 days, negating everything made for the last 4 years and could as well be much more than make up for the two losers.

Interestingly, the markets recovered in 2020 and are making all-time highs at the moment of this article. The epilogue might be an even bigger drop you will be ready for in 2021, you know all the story behind it, and your systems will show the signal when it is time to short. 

Now, if you really believe in the fundamental analysis, you want to hold safe-heaven assets long term, in this case, you do not have to wait for the technical. Just go with your prediction and stick to it even if that asset is down for the year. You are looking at the long-term hold here, and some assets, such as silver, for example, have extremely bullish data, as described in our previous articles. Whatever happens, be sure to diversify your bearish and bullish positions across various assets. In a bear market, there are two sides to the coin, the bullish reversal is around the corner, then another bear pull. It went wild during this pandemic in 2020, you might as well use the opportunities in 2021 and grab years worth of profits in a short time. All markets are in, not just forex, pay attention to indexes, crypto, hard assets, and others under the CFDs.

Forex Stop-loss & argets

Is a Stop Loss Always Necessary?

Do you really need a stop loss? The quick answer is, yes. The longer answer is yes if you choose not to exploit your Forex trading account. There are many reasons to use a loss limit, but there are some strategies that can be implemented to give up a stop loss, although it is usually the domain of institutional traders to do things like that.

Stop Loss is your Best Friend

Stop loss is your best friend, as volatility in Forex markets can increase at any time. There may be a surprise announcement, some events around the world, or, worse, something is happening while you’re asleep. He just can’t predict everything that’s going to happen, so the end of the loss is his guardian angel. As for Forex markets, there are a multitude of reasons why you might see a sudden rise in price.

Let’s take an example, in recent years we have watched the Swiss National Bank defend the level of 1.20 in the EUR/CHF pair, refusing to allow the pair to fall below that level as the Swiss franc had become too expensive. However, on 15 January 2005, the SNB suddenly abandoned parity and allowed the market to fall, as it had been protecting that level for a couple of years and had finally become too expensive.

Large amounts of institutional money were going in and buying the pair every time it approached the level of 1.20 because it was “easy money”. However, as soon as the Swiss moved away from the Forex markets, the pair collapsed and several candles fell in milliseconds. Around the world, there were stories of retailers who had rejected the common sense of putting up a stop loss and were eliminated.

Stop Loss Example

Think now of an American merchant. You have a position in the EUR/USD pair putting your trust in the Swiss National Bank to protect it. Suddenly, when he wakes up on January 15, he discovers that his account is empty. His agent is demanding that he deposit more margin, and for some people, it was even worse than that: they actually owed their agents money because the orders could be filled quickly enough.

Of course, this is a very extreme situation, but it is not strange that a pair like the EUR/JPY drops 100 pips in your sleep. Some people use stop loss as a “disaster stop”, but they are designed to protect you when your analysis is not correct, and let’s be honest: incorrect analysis is simply part of the game.

Stop Loss Exists for a Reason

Not only are there losses to protect your account against disasters, but it also represents a “line in the sand” where it is verified that your analysis is incorrect. If it proves wrong, you just walk off the market and realize you’re living to fight another day. Unfortunately, many of you will be moving stop losses to avoid taking losses, but the successful trader is willing to reduce losses quite quickly. Ultimately, the successful trader understands that if his analysis proves incorrect, it is better to keep his losses very small. However, if it is shown that your analysis is correct, moving your loss limit is in your favor to ensure profits is a perfectly acceptable strategy. This allows the market to tell you when it’s time to leave after a big, higher race.

Other Strategies

Institutional traders often use options to protect themselves against currency fluctuations, but sometimes that gets complicated. Most retailers will receive better service by simply accepting a loss as soon as it appears and they move on with their lives.

For example, if your loss is 1% of your account, it is not a big disaster. However, if you don’t use a loss limit and simply use a strategy of hope, you may discover that you are so low that you can never get that money back.

To use the options of the strategy, quite often if a trader goes long on the EUR/USD pair, he will buy a spot simultaneously, with the idea of at least recovering part of the losses if the trade goes against him in the Forex spot market. Otherwise, if the trade works, the option expires without value. However, there are many other factors in the choices that make it much harder and slower to figure out how to protect yourself by ticking.

Depending on where you live, you can direct your trade with the same broker if you trade in the opposite direction. However, usually, this is a scenario in which you limit the amount of profit you can get because one of those trades will be absolutely a loss. This has nothing to do with having a loss of stop in a trade that works for you because theoretically, the profit potential has a limit.

It is not advisable to trade without a stop loss. You should never trade without a stop loss under any circumstances. There are too many reasons why you could lose a lot of money. Of course, some of the points I’ve been making in this article are a little extreme, but at the end of the day, you never know when something is going to happen. Beyond that, it’s a way to force your account to neutral again if the trade doesn’t work. You can also use it as a way to make a profit if the market backs down after a big move in your favor.

The Forex world is full of bodies of people who thought they were smarter than the market and couldn’t bother to suffer a loss. There is no such thing as a “100% successful strategy,” apart from limiting your losses and expanding your profits. Losses come independently, so protecting yourself is all you can do.

Forex Stop-loss & argets

How to Stop Exiting Trades Too Early

Have you ever exited a trade too early for a small win or loss and wished you could go back and change it shortly afterward? Many traders have struggled with the problem of exiting trades too early at some point. Here are a few examples of this problem:

  • A trader fears taking a loss and decides to close out their trade at break even, even though the trade is a winner.
  • A trader exits the market after making a small profit, but well before their planned profit target due to a fear that the market will reverse. This causes them to make less profit. 
  • The trader sets a stop loss but decides to exit the trade well before the stop loss is reached because they have incurred a small loss. The trade then goes on to be a winner.

Of course, there are many different reasons why a trader might choose to exit their trades too early. If you want to be a successful forex trader, you’ll need to work to overcome this problem and make sure it isn’t happening to you. Below, we will talk about some of the underlying factors that contribute to the issue of closing trades out too soon.

  • Lack of Proper Education

An ideal trader is well-educated and has a good trading strategy that accounts for risk-management. Others jump in too soon and open a trading account simply because they have money to invest or they’re inspired. If you don’t really know what you’re doing, then you’re going to have an issue with figuring out when to exit trades. Knowing when to enter trades would also be an issue. The best way to overcome this is to make sure you have a good understanding of all concepts related to forex trading. If you’re constantly watching your trades, you could also remember to “set and forget”. Some other common problems that stem from lack of education include overleveraging trades or risking too much money on any one trade. It is important to look at the bigger picture to see if you are making any of these mistakes.

  • You’ve Incurred Previous Losses

Those that have had recent bad luck with a trade or a string of losing trades are more likely to be fearful and anxious when trading. This affects one’s view of the market and makes it seem riskier to enter a standard trade. The best way to overcome this problem is to realize that there’s no way to know for sure whether a trade will be a winner or a loser and that your bad luck will come to pass. It isn’t logical to make decisions out of anxiety or fear, as this usually leads one to make the wrong choices.

  • Trading Psychology

Trading psychology focuses on the ways that different emotions affect our trading habits. For example, if a trader experiences a number of bad trades, their anxiety might cause them to exit too quickly. Fear can do this too. We briefly mentioned anxiety and fear above, but we want to point out that these emotions can occur for many different reasons. Some traders are naturally anxious or scared of losing money because that is their personality, or they aren’t entirely confident in their abilities. Whatever the reason, someone might let these emotions convince them to exit a trade too soon. Emotions like greed or excitement might have the opposite effect and cause traders to exit too late.

  • Negative Thinking

Even though they have decided to become traders, some people still think negative thoughts about their abilities. One might tell themselves that they have always been poor and always will be if they have some losses. Another might consider themselves stupid and be too hard on themselves over losing trades they couldn’t have expected. It’s important to remember that the way you think will affect your performance. Don’t beat yourself up over losses, simply try to learn from them and move on. 

In Conclusion 

Above, we highlighted some of the personal factors that contribute to exiting trades too early. Emotion, previous losses, negative thinking, and the lack of a proper trading education seem to cause this problem for many traders. Now that you might have an idea of what is causing you to exit your trades too early, we will provide some tips that will help to avoid it:

  • Remember that everyone loses. You aren’t going to have a 100%-win record when trading and that’s normal, so move on if you take a small loss.  
  • Have an entry and exit strategy with take profit targets and a set stop loss. Don’t exit before your planned take profit level or stop loss is reached. Try to “set and forget” your trades. 
  • Learn to take a break if your emotions become too difficult to manage.
  • Keep a trading journal to log your progress so that you’ll see if there is a pattern of exiting trades too early. 
  • Try not to allow any recent losing streaks to alter your decisions when trading. 
  • If you feel confused when trading, then consider taking measures to educate yourself more thoroughly so that you can base your entry and exit points off more solid data. 

Realizing that you’ve been exiting trades too early is the first step to solving the problem. Next, you just need to figure out the reasons why you’re doing this and how to overcome it. Hopefully, this article will help many traders to pinpoint some of the personal causes for this issue. If you’re an intermediate or skilled trader, however, you may be having this problem because of more technical concerns. 

Forex Stop-loss & argets

Forex Price Levels: Why You Should Avoid Them

Price points in forex trading continue to be a popular tool but are they everything they promise to be?

While there is a veritable myriad of social media accounts and youtube channels out there singing the praises of knowing about and even using psychological price levels or price points, there are also those telling us traders to be wary. It is important that you get to hear this other side of the argument so you can make your own informed decisions.

What Are Psychological Levels?

So what are we even talking about here? Well, the simplest way to put it is that there is a phenomenon where the price of a currency pair will sometimes pause or bounce at a certain level and this level is a round number. In other words, prices that end in a double zero form lines across your chart where there could be significant price action in given circumstances. These numbers get called full levels or the big figure or anything imaginative forex bloggers conjure up (but full levels and the big figure are the most common).

There are a couple of other sub-categories that are worth being aware of here too even though they are even rarer than the big figure. The first is the intermediate or mid-figure (i.e. numbers between two full levels, which end in 50 rather than 00). The second is the bank level, which is a purely theoretical construct where the idea is that big banks like to use the levels ending in 80 and 20.

The idea behind these levels is that they are a tool you should keep in your toolbox and be aware of so that you can make use of them to enter into trades. This is where much of the disagreement in the forex online community occurs.

How Are Psychological Levels Traded?

There numerous ways to make use of these levels and lots of proponents or critics sitting on either side egging you on or warning you to stay away. The most common advice seems to be that these levels are useful for planning a breakout trade or a reversal. This is at best challenging or, according to some, total lunacy.

The best advice out there seems to be that you should be aware of these levels, mostly because they generate a greater volume of trading. This increases demand, if that was something that was worrying you, and does make a successful trade more likely. However, it is important that you tread extremely carefully here and use a number of other indicators and tools to ensure that price action around one of these levels is tradeable.


Are there any problems with psychological levels? You bet!

The first of these problems is that in the vast majority of cases the price of a currency pair will simply blow through a psychological price level, whether it is a full or round level (the big figure), an intermediate mid-figure (ending in 50) or a bank level at 20 or 80. That’s it. In most cases, nothing happens. This is a problem in more ways than one. First, it means that the very significance of these price levels is called into question. If the price just ignores them on its way through then what is their value supposed to be in the first place? Secondly, if the price fails to respect these levels on so many occasions, how can you know, calculate or intuit whether this is one of those rare occasions where the price will approximate something like respecting the level?

Ah, you think, there’s the rub! It’s precisely those rare occasions where psychological price levels are useful.

Well, there’s another problem with that too. It is precisely because psychological price levels are a thing in the online forex sphere – precisely because they are so talked about – that they could actually be dangerous. When the price approaches a full or big figure level, suddenly a lot of traders are paying attention. The volume of trading spikes as lots of traders try to set up breakouts or reversals and this creates a hotspot. Suddenly everyone is on the radar of the big players in the market. It’s like sharks being drawn to a feeding frenzy by smaller fish causing a commotion. Those big players, the sharks, now have to decide whether all this activity is worthy of manipulating the price so as to crash through the stop/losses of a large number of smaller fish.

You see, when the price of a currency pair approaches a nice round number – basically any number ending in a double zero – the forex social media universe comes alive with comments about the significance of this level. And for the army of inexperienced or downright inept traders out there, a pressure to trade builds up. But the big players, large institutional traders, and big banks will know this and they have a good sense of where the majority of stop/losses will be set. So one thing you’ll often see is that before a reversal or breakout happens, the price will spike in order to first crash through the stop/losses of potentially hundreds of hopeful but misguided smaller traders looking to take advantage of a situation they had heard was going to go in their favor.

Of course, that isn’t how it always plays out, that’s merely one scenario you have to be wary of.

So What Can You Do?

Well, the first thing that is smart to do is actually see for yourself. Take a currency pair that you trade regularly and look at its historical performance. You will want to go back a significant length of time so you catch as many examples of the price crossing these psychological levels as you can. If you’re a day trader, go back a year and if you trade on smaller timescales, go back far enough to sweep up a sufficient number of cases to look at. Draw lines across your chart at significant psychological levels and then go investigating to see how the price behaves around these levels.

What you will mostly see when you do this is that in a huge majority of cases the price just crashes through these psychological levels as though they weren’t there. And remember, that is ultimately the biggest criticism of this whole approach. In those cases where the price does linger at a level that you’ve picked out, explore whether your trading process would give you an entry point. The critics will say that even those times that appear tradable will ultimately be of little or no use. They will tell you that even price movements that appear, at first glance, to be somewhere you could enter a trade behave in reality more like traps that will draw you in but lead to failure.

The best thing to do is to see for yourself.


If there is one thing to take away from this, it is that psychological levels certainly exist in the minds of the forex chattering classes. People on social media and running trading blogs or websites talk about them a lot and, in that sense at least, they exist. Purely as a result of that chatter, it is useful to be aware of them.

But also be very aware that there are a growing number of critics of psychological price levels as a trading tool. The most ardent critics will tell you that the best advice is to simply ignore them. Trade as though they do not exist. This might be a little extreme as it is always good to be aware of various market phenomena, even if you don’t end up using them to actually enter trades.

Regardless of your level of experience or know-how, you should know that you only make use of any trading tool once you have put it through its paces by backtesting and demo testing it. These psychological levels are no different and you should not rely on others promoting them as the next big thing unless you are sure you can carefully and methodically incorporate them into a system that works for you.

Forex Stop-loss & argets

Exit Indicators: When to Exit a Trade

While forex traders usually have a number of practical questions regarding indicators and other useful tools to help them make a profit, some of them rarely think of developing a stable strategy that will function as the foundation for growing as a trader in this market. Instead of adopting a comprehensive plan on how to be better traders, some forex enthusiasts seem to be more interested in outside factors and tips that will help them get a lucky win in no time. Since time is money, as they say, it is also an impotent element in trading in the fiat market on quite a few levels, which is why will be dealing with the question of what the best time to exit a trade is.

How long a person should hold onto a trade is certainly one of the key topics due to the fact that acquiring a sense of a timely reaction and knowledge on when to exit is what will preserve your finances after all. While the ability to stop trading on time may seem easy to acquire, it in fact requires traders to possess the key tools and skills that can allow this to happen. Of course, to offer a detailed and informative response, and draw some constructive conclusions on the way, we must strive to see the bigger picture and objectively assess the situation from all angles, looking into all the layers of this matter.

In order to manage time, the first foundation tier you should be looking to build is a proper algorithm, which will consist of several indicators that will signal you to take action at specific times during each trade. Some of the most successful traders in this market use a six-piece toolbox, consisting of several indicators such as ATR, a confirmation indicator, and an exit indicator. The last one, the exit indicator, is an extremely valuable asset to your trading kit because having an indicator that can tell you when to stop trading is what will safeguard you from failure while still allowing you to enjoy some lucrative trades. Such an indicator can therefore also signal you to exit bad trades on time without letting you destroy your finances. Finding the right exit indicator is what many professional traders advise other market dwellers to focus on and they keep stressing the fact that these indicators should be an essential part of an algorithm every trader should aim to make.

Secondly, it is crucial that you ask yourself what kind of trader you are. If you are a timid trader who fears following the momentum in a trade, you are also the one who runs away as quickly as possible for the fear or crashing down, which prevents you from seizing the moment and rising to the professional level. You could also be a reversal trader and one of many who cannot thus exploit this market’s full potential, either because of inexperience or due to mistaking forex for another market such as the stock one.

Reversal traders more often than not fail to grasp the importance of exiting a trade before things get really ugly as they go too deep trying to call reversals without understanding how trading currencies essentially works. This group of individuals has yet to learn that only once they exit the trade will the big banks redirect the prices and decide on their immediate future, which naturally leads to the conclusion that trend trading is every trader’s best possible strategy and means to enter profitable trades.

Apart from finding a good exit indicator that will help traders get out just in time, the topic of strategy is then equally vital as it entails designing a comprehensive plan that serves to protect them and guide them throughout different trading stages. Calling trends should be the first idea based on which a trader can start planning how to go about future trades, which is why it is intricately connected to today’s question of when to exit.

The most prominent figures in this market often indicate how important it is to decide on when exactly a trader would want to finalize a trade, and some of the advice centers around the idea of taking half of the trades off after a price hits a certain point and upon gaining a specific number of pips. Therefore, traders can end a trade when a price hits the break-even point, the stop loss, or the trailing stop loss or upon receiving a signal from the exit indicator. Simply put, you should keep trading as long as a trend lasts and your best friend here is the algorithm you have worked to build, including an exit indicator, as well as the plan which outlines how you will manage a trade you are already in.

An immediately following question is what a really good exit indicator does. To begin with, you should bear in mind that a tool providing such useful insight will probably not be the zero-cross indicator. However, in terms of actions and functions, it should be able to provide you with two-fold assistance. You will firstly want your exit indicator not to be too rigid, preventing you from following the momentum and using the power of big trends, which will in effect help bring you profit. Since prices oscillate and they also have retracements, you should not be looking for an indicator that will cut you short before you get the chance to get as much money as you can.

As some indicators function precisely in this manner, they push you out on some of the first retracements you come across and make your exit way too early. In comparison, more often than not, a good indicator should let you end a trade before a price drops and hits your trailing stop. In addition, to be further aware of how to use an indicator to assess the best time to stop trading, you should keep in mind that exiting a trade at the very top or bottom is never recommended. Your goal should always be to get as close to either of the two extremes, which should still bring you a substantial amount of pips.

The next step in growing as a trader and understanding when to exit certainly includes the relevance of the concept of time in building a trading mindset. Whether you are a beginner or a professional, you must already know that developing an algorithm and finding the tools which lead to profitable outcomes takes time. Some of the best trades professionals did also lasted for a period of two months even, so learning how to be patient and practicing this virtue in various aspects of trading will relieve the tension of asking the question of how long to trade. Time alone is of no importance, but it is one of the central notions of building trading psychology.

Learning requires persistence and diligence as much as withstanding some of the impulses to exit a trade before time. You may also need time not just to discover a good exit indicator, but also to test how it can function better after making some settings adjustments. Instant gratification will undoubtedly put you in the same category of people recklessly losing unbelievable amounts of money at once. All in all, instead of exhibiting such a casino player mentality, to gain satisfaction and amass a fortune, you truly need to invest in growing a more sustainable approach and set your priorities straight.

Beginners Forex Education Forex Stop-loss & argets

How to Set a Maximum Loss Size

When you have made a loss or a couple of losses in a day, it is easy to want to trade more in order to try and get some back, but what would happen if they also ended up losing? Would you be willing to risk the entire bank account balance just to make back a few of your losses?

Whether you are new to trading or have been trading for years, I am sure that you have been told how important risk management is, normally people refer to it in regards to a single trade, but it is also relevant when looking at your account as a whole, this can be broken down into months, weekends, days, trades and any other increment.

There will be times that your trades go the wrong way, maybe your fault, maybe there was an unannounced news event, this is inevitable. What is important is that you take steps in order to help protect your account from these events and moves, this is why it can be important to set something that we call a daily maximum loss.

So what is the daily maximum loss, well it is a figure, either monetary or percentage that is the hard stop level for our trading, if you hit this level then you need to step away from your trading platform, take a break and then come back tomorrow with a fresh head. When you are incurring losses, you start to get into a psychological battle with yourself, so stopping and stepping away is a method of resetting that battle in your head.

Having a bad day isn’t something to worry about, it is something that everyone, even the very best suffer from. What is important is how you deal with those bad days.

So how would you set these goals? There is no set way to do it, each of us will have a different approach and each of us will have a different ability to deal with risk, so it is up to you, but here are a few suggestions to give you ideas.

Use a percentage to gauge your losses for the day, gives yourself a set amount, maybe 2% of the account or 5% depending on you and your strategy, as soon as your account hits that percentage, stop and walk away.

A monetary amount, this will depend on your account and can also make the losses seems more real, if you have a $10,000 account, set your maximum daily loss to $500 or $300 whichever you feel is best for you, once that amount is hit, take a break and come back tomorrow.

One way to work out percentages is to base it on your average gain. Would you be willing to lose one day worth of winnings or would you want to lose less, if your average gain is 1%, then set your maximum daily loss at 1% or 0.5% depending on your own thoughts.

You could also set this amount via a longer period of time, give yourself a max loss of 10% per month, this can then be divided down into days, so if every day you lost to your limit, you would only be 10% down.

Set a maximum number of losses, instead of looking at percentages or monetary values, you could set yourself limits based on trades, this is a little risky as it can still result in high losses (although you should have stop losses in place), but if you set yourself to two or three losing trades in a day, then stop and move away until tomorrow.

It is important that you come up with something of your own that you know you will be able to adhere to,m there are a lot of dangers to not following a maximum loss plan, mainly that it can put your account in danger as you go back into winning back mode or through desperation to either make your money back or to simply have a winning trade to end the day.

It is important to stop and walk away fro the day, this could give you the opportunity to properly analyze the trades that you have made to find out why they have lost, or to simply sit down and relax for the rest of the day, taking your mind away from the stresses of trading.

Just remember, protecting your account is the number one key to successful trading, not only will it protect your equity, but it will also help to protect your mind from the stresses of loss.

Beginners Forex Education Forex Stop-loss & argets

What to Consider When Planning Trade Exits

When it comes to planning trades, the majority of people will instantly think about planning to get into a trade, but there is an entire second part of each trade, the exit. Getting the exit right can be just as important as the entry, if you get it wrong you can miss out on some potential profits, or you can potentially lose out and make some very large losses.

Some strategies even focus on the exit rather than the entry as they know the importance of it, so why exactly do people seem to negate this part of the trade? It has simply come down to the fact that people look for profits, in order to do that they need to put on a good trade, even those that look at the exit of a trade often just look at the basics of it, the stop loss and take profit and pretty much nothing else, but we need to think about a lot more.

So we are going to be looking at a number of different things that you need to be thinking about when you decide to plan your exits and the importance of doing so.

What are you willing to risk?

Your risk management plan should be the first stage of planning your exits. This will detail exactly how much you are willing to risk with each trade or how much of your account you are willing to risk each day, week, or month. Many traders look to risk 1% to 2% of their account per trade. However, each strategy is different and so some risk much less and some more. It will all come down to you and how much risk you are willing to hold and also your strategy. Ensure that you have this planned, it will give you the baseline for when you need to get out of a trade, either through hard stop losses or trailing stops, whatever your method, ensure that you know how much you are willing to risk with each trade. Do not be afraid to alter it, if it is not working the way that it is, there is no harm in altering it in order to more suit yourself and your strategy.

At what point do you cut your losses?

You will have trades that go negative, everyone does and it is a major part of trading that you cannot avoid, especially considering that the majority of trades always start out negative due to spreads. What you need to ask yourself though is where and when you should cut your losses, how far are you going to let it go? This works along with your risk management plan and can indicate to you where you should be putting your stop losses. While you should always be using stop losses, there will inevitably be times where you don’t, others through purpose or just due to completely forgetting it. If this happens, you need to know when and where you will get out of those trades, the last thing that you want to do is to let it run indefinitely, so have an idea that is based on your strategy of when you will want to cut the losses should things go the wrong way.

What if your tradies invalidated?

The markets can be a little unpredictable, this is very much true, but the world can be just as unpredictable, and there can be events happening that will completely invalidate any trades that you may have placed. There needs to be a contingency plan in place just in case this happens. What could result in this? A Tsunami or earthquake or more recently, a pandemic that goes around the world taking out a lot of the world’s economy, when things like this happen you will need to act.

You need to have an understanding of what you would do, if things are suddenly going crazy in the world and with the markets, are you going to exit your trades in order to save them and your account? If the market consensus has suddenly gone south and against you, it may be a good time to close out and reevaluate the markets before entering again. There is also the argument of letting it run as things can be unpredictable and so could go the right way too, but this is down to you and your strategy. Just make sure that you are prepared to make changes and potentially cause trades should things go a little crazy out there.

How long are you going to hold your trades?

Initially, this will come down to your strategy, those that are scalping will be holding their trades for a shorter period of time while those that are using a swing trade strategy will of course be holding the trades for a long time. However, even within these sorts of strategies, different people will have a different idea of how long they should be holding onto their trades, ultimately it will be up to you how long you hold it, but what is important is that you have an idea of how long planned before you make any trades.

Consider your strategy, consider your own risk style, and plan how long you will hold your trades. It is vital that you try not to come out of trades too early or too late if you do it can skew your overall strategy and risk management plan, keep your trades in line with your risk to reward ratio so even when you do need to cut losses, you are doing so in line with this and so it will help to keep your account profitable.

So those are a few of the things that you may need to consider when you look to exit a trade. Try not to only concentrate on the entry, while that is, of course, important, it is just as important that you get out of a trade in the right place. Stick to your plans, your strategy, and your risk to reward ratio and it will help you and your strategy to become a lot more successful and profitable in the long run.

Forex Stop-loss & argets

The One Time-Frame That Might Give Us the Best Results

One of the main conflicts that traders have with themselves is how they are going to organize their time. Work-life balance is one of the key figures in our lives. Without the schedule, our trading could be stressful and compromise our productivity. Ultimately, if we are not careful, it can lead to over-trading, dullness, information overload, and burnout. So if we want to have any chance of winning in the forex industry we need to go outside of conventional thinking. A constant sea of conventional thinking is always there but if we want to vault ourselves into that fraction of a percent where we can improve our trading, we need to reconsider which is the best time frame to trade forex.

As we all know, by time frame on most charting platforms we can trade the 5 minutes chart, 15 minutes, 30 minutes, 1 hour, 4 hours, daily, weekly, and the monthly chart. These charts are the most common depending on the platform we trade. So where we can search for the best chance of winning? Word winning has a different meaning for everyone. What we might perceive here as the winning in forex is consistent profit. Consistent profit over and over to the point where we go long-term and look 12 months after we started or 12 months after we started keeping track. Are we at a consistent well-organized path to where we can trade real money and make a good living off that? Are we trading with good enough results to where somebody can notice that and hire us? Or to a lesser degree, are we increasing and improving at a good enough pace to where we are going to get there soon? That is the winning according to professional traders. So the best time frame to trade forex if we want to win consistently might be the daily chart. Why do we believe that the daily chart might be the far superior chart to trade forex? There are 4 main reasons for this statement. The first reason, everything on a daily chart, every technical tool works better and more consistently than any other chart out there.

Even if we use some not that good tools like the RSI indicator or trend lines, they work better on the daily chart then they do anywhere else. In other words, trades win more often. If there’s any constant in all of this research among traders is that every single time the daily chart turns out to be more consistent than any other chart. The second reason, why the daily chart might be the far superior time frame to use is that we don’t have to be slaves to the markets. Trading does not suppose to be super long, we could just turn on our charts, look at all currency pairs, our algorithms, and the system that we put together tells us one of three things. Either we make a trade, manage a trade we’re already in or we do nothing and move on. That is how it supposed to be and after we can do whatever we want because we want to achieve a great life-work balance. So some traders who trade on 5 minutes or 15 minutes chart might be trading a lot longer than someone who is trading on the daily chart because they want to get in and get out and make that quick money. How quick is that money really? The market doesn’t always start moving when we think it’s going to so there can be a lot of waiting.

Sometimes there are days where the market just never gets off the ground therefore it could be a lot of waiting for nothing. The forex trader life can be nerve-racking and horrible or it could be blissful, wonderful, and rewarding. The third reason, why the daily chart might be the best option is that news events matter a lot less to us than before. What do we mean by this? Well, on one hand, if we are trading smaller time frames news events on particular currencies that don’t even have a lot of significance can disturb our trade instantly if they don’t go our way. On other hand, the news event might actually be in our favor but for some reason, banks could decide to take opposite way even though the news event was good so we could easily find ourselves in a helpless feeling of sitting behind our system and scratching our head after a losing trade. If we manage to get those feelings out of our trading, life could be much better, it’s going to be a lot less to worry about.

Essentially, we don’t have any control over those news events. The news events are killers and if we have a chance to avoid most of them and if we are able to sidestep most of them that could be a great addition to our daily chart routine. Going on further, we will try to reveal the fourth reason why we might trade the daily chart exclusively. The big banks of the world, the people who are responsible for moving prices up and down employ traders that go to work every day for the purpose of moving the market against the popular side to knock those orders out and put that money back into their pockets so they could redistribute it back in the market and make the price go up and down. Professional traders claim that banks are doing this over and over every day and because of that the daily chart traders might be less exposed to these financial earthquakes than for example the 15 minutes chart traders.

Why? Because there’s a lot more of 15 minutes chart traders and they are trading all the time which means there’s an endless supply of traders out there for the banks to take from. The same reason why Las Vegas casinos are making tons of money on slot machines because there are always people there pulling that lever and hitting buttons over and over again regardless of how much they are actually wagering. It is important to mention that according to our knowledge the weekly chart and the monthly chart time frame do not perform better than the daily chart. Simply, the weekly chart time frame contains too many huge news events where we can no longer avoid them so there might be a big risk for us to ruin our trade. There can be thousands of pips in this time frame so it is highly questionable is it worth it.

For those who are skeptical about the daily time frame, there’s a solution. They can try to do both at the same time and compare which one can give us better and more stable results. If both works, then perfect, we could trade in both time frames. In the end, we will never have control over the market but we concluded that forex trading is such a rare combination of things where we can have a large impact and somewhat control the outcome. If we set things the right way we might have some measure of control and we believe that the journey starts where we can eliminate things that we cannot control. The daily chart might be the right way to get things done as we all want them and be closer to our central mission of becoming the best traders that we could potentially become. Hopefully, in the future, we can attack the market with more confidence.

Forex Daily Topic Forex Stop-loss & argets

Masteting Stop-Loss setting: How about using Kase Dev-Stops?

The stop-loss setting is a crucial component to the long-term success of a forex and crypto trader. The market forces cannot be adapted to the wishes of traders. Successful traders must accept that fact instead of fighting it for the sake of being right. “What cannot be cannot be, and, furthermore, it is impossible,” said some time ago, a well-known politician in a phrase that did not pretend to be comical. But it states a clear fact: Fight against the markets is like Don Quixote fighting Windmills.

In previous articles, we explained John Sweeney’s MAE method, and also average true range-based stop-loss settings. In this article, we are going to talk about Cynthia Kase’s Dev-Stops.

Cynthia Kase is a well-known and successful futures trader, speaker, and author of several books on trading and technical analysis. She conceded high importance to stop settings. Cynthia says something undeniable to most of us, Technical literature has mostly focused on entries, and almost nothing on entries besides some words on stop-loss or trailing stops. She says that this is like teaching how to drive a car but without explaining where the brake pedal and how to press it.

In her book “Trading with the Odds,” she explains that this situation is mostly due to greed and fear. Traders don’t like to lose, and most of them don’t know when to get out of a trade. Also, she explains that fear of losing causes people to hang on their losses in the hope the market will turn and recover them. Another explanation for this situation is that the beginning of technical analysis was on the stock market, and no company wants its stock downgraded from buy to hold or, worse, to sell. As opposed to Forex, only a handful of people make money shorting stocks, so exits are much less critical on the stock market.

Stops based on fear and greed

Most traders want to squeeze out the most of a trade. Therefore, they decided to use the highest possible leverage. To reduce the dollar risk, they desire to put it as close as possible to the entry-level. But, as said earlier, using obvious levels of support/resistance and set the stop order just two or three pips below is absurd. Better send your money directly to the charity, since they will make much better use of it than the institution that is going to collect your hard-earned money for free.

Risk is imposed by the market

The critical point is not to impose our conditions on the market, but read what the market is telling us in terms of Risk. In trading, Risk is proportional to volatility. Your dollar risk is the amount the price can move against you in a given interval, times your position size.

Volatility is measured using the Range and also by the standard deviation of prices on an annualized basis. One standard deviation of the price holds 68$ of all the potential price movement if we assume prices are dispersed in a gaussian distribution. That means that a price that goes against a trade by one standard deviation it will encompass 34% of the observations (the other 34% would go in the direction of your trade). The problem with using volatility is that a yearly measurement of the price variations does not help with sudden short-term volatility changes. That’s the reason for using ATR instead.

The concept of the threshold of Uncertainty

A trade is a bet on a market trend. We think a particular trend is in place. Ideally, the direction is a straight line between one initial level and a final level. If we think of the short-term price wiggles as random noise, we adapt our trade by placing our stops far enough away from the trend mean to include noise. The magnitude of the noise means we don’t want to exit at the minimum turn against the trade. The trader needs to devise a way to follow the trend while getting out when it ends. 

 The Kase Dev Stops

Using a fixed multiplier for the True Range is an initial approximation. In our article of true range, we used a fixed 2X multiplier to set our stop order away from the market noise. Kase’s Dev Stop uses what she calls the skew of the volatility, the measure at which a range can spike in the opposite direction as a multiplier of the range measure. That makes the Dev-stop an adaptative trailing stop. Dev Stops is a well-known indicator in TradingView. Also, it is available for downloading at the site for your Metatrader workstation. 

Chart 1 – Kase Dev-Stops in a GBPUSD 4H chart.

We can see in Chart 1 that four lines follow the price action. The first one is the mean line and the 1, 2, and 3 standard deviation (SD) lines of a two-bar reversal. As we can see, the 3rd standard deviation is seldom touched, being the 2-SD the conservative method, and the 1-SD the preferred aggressive method. In the case of using 1SD, it is advisable for a reentry plan, or create mental stops that would trigger if the close happens below the 1SD Dev-stop line.

As it should be the norm when learning a new method, it is strongly advisable to backtest it first to assess which SD line works better with your particular asset and objectives. Also, after backtesting your optimal solution, it is prudent to trade it using a demo account. There we could also assess the costs and benefits of the method by adding the brokerage costs.

Reference: Trading with the Odds, Cynthia A. Kase. 1996, The McGraw-Hill Companies Inc.