Forex is a highly volatile market.   he exchange rate can move 150 points or more in a matter of minutes, especially if there is major announcement or central bank intervention. For example, when Alan Greenspan made a comment and around the same tme the Japanese Government intervened in the market, the affected currencies moved significantly.

One must use a mental stop loss or enter a stop loss or risk losing most or of one’s capital. Immediately entering the “market at order”, a stop loss must be placed. It is a pre-calculated price where you plan to exit the trade if the market moves against you. It forces you to folow an exit strategy getng you out of the market at around the nominated exit price. If possible, it is wise to place the stop loss just above or below a resistance or support line.

A stop loss should never exceed your maximum exposure amounts. One should never increase your stop oss after you have entered a trade and established your stop price.

RISK TO REWARD RAIOS are important and should be calculated.

A risk reward ratio of 1:1.5 is recommended.

Risk. 30 pips to make a profit of 45 pips or risk 40 pips to make 60 pips.

The best location for placing stops is:

15 pips above the last swing high for a SHORT trade and

10 pips below the last swing low for a   LONG trade.

An alternative place for a stop loss would be just past the next Fibonacci level, e .g buy at 61.8% retracement and place the stop loss below 78.6% retracement.

It is stl important to apply the above calculations for your risk/reward. If stops exceed the risk/reward calculations, seriously consider not entering the trade.

Moving Stops

It is important to protect your profit. One way is to use a moving stop loss. When the trade becomes profitable, you move the stop loss to reduce your risk.

If the Stop Loss is 40 pips with 1:1.5 risk reward ratio, you are risking 40pips to make 60pips profit.

• When the market moves 10 pips in your favour, move the Stop Loss 10 pips. Your Stop Loss wil now be reduced to 30 pips.

• Continue reducing the stop loss each tme the market moves another 10 pips in your favour. Your stop can eventually be moved to your entry point and give you a “free” trade.

• When the market reaches 75% of your original target for profit, begin progressively tghtening the distance of your stop from the current market price.

• If there is no sign of a market reversal, take off your lmit order and continue to use the moving stop technique to protect profits and ride the trend.

• If there is strong evidence of a market reversal, close your posion with a market order and consider opening a new posion going in the new direction. You wil need plenty of practice to do this lve. We know that after a big rally there is always a consoldation which is basically a retracement to a Fibonacci level.

You need to have a stop that does not folow the market too closely. The noise or whipsaw in the market can be 20 – 30 pips or more and wil take out stops that are too small. It is suggested that stops should be at least 30 to 40 points in most cases, especially in the early part of a trade. However, the best posion for stops is above and below points of resistance or support as mentioned above.

It’s simple there’re only two real variables :

win/loss ratio It’s an avarage of Your win to Your loss should be minimum 1.5, so if Your avarage loss is 100$ You need at least 150$ of Your avarage win. Higher w/l ratio it’s better for You.

win % It’s simply how often You have right. So how many times You get Your profit. 

Which of these You should take more care?

Of course win/loss ratio, why? becouse You don’t have any idea what will be Your win%. You simply don’t know if be right 40% or 45%.

So remember Your win sould be large and losses have to be small.