He's a blog posting from one of my friends on mySpace, Barry. To close the year I couldn't resist posting this for thought!
****************************************************
Here's a revelation that changed my trading forever:
"Successful trading is imply a business of not making mistakes."
That has become such a cornerstone to my trading that I actually framed that saying and put it on my wall over my trading flat screens.
One of the most productive things you can do to become a profitable trader is to make a list of your most common mistakes.
Awareness is the first step.
Then watch your behavior and don't allow yourself to make those mistakes any more.
Each of us has her or his own challenges, so you must make your own list.
But to get you started, I'll expose my sins and share with you what have been my most common mistakes over the years. This is the official list of my own 7 most common mistakes. Perhaps you'll find it helpful:
1. Missing trades. When my setup occurs I need to make sure I'm aware of it and haven't been distracted by chat rooms, email, phone calls or lulled into boredom by a consolidating market.
I also need to make sure I don't hesitate to pull the trigger when I do see my setups.
2. Trading reversals that are not in extended trends and during which the internal market energy has not reversed.
3. Trading only 1 time frame without the confirmation of a longer term chart.
4. Trading while tired.
5. Over trading. Never try to make up for losses or missed trades. Never trade out of boredom. Never take any trade that doesn't match my rules 100%.
6. Not taking profits on my first exit soon enough. This is critical to adjust my cost position in the trade and therefore keep losses small.
7. Exiting my entire position too soon. I must keep at least part of my position alive until the energy of the trade has shifted so that I can ride the big moves.
Well, that's my confession.
Now you know my sins, but I imagine they're not so different than yours.
Have you committed these trading sins ... or your own unique ones?
The only solution is to REPENT!
That doesn't simply mean to say you're sorry.
It means to change your behavior.
Many people treat trading as:
an intellectual exercise.
a mathematical challenge.
or a research project.
Actually it's more about managing your behavior than anything else ... of course that's often the most difficult thing of all!
*********************************************************
I couldn't have said it better!
Barry can be found at: http://www.myspace.com/topdogtrading
Happy New Year !!
Forex Journey
Monday, December 31, 2007
Friday, December 28, 2007
Are you a forex trader or a gambler?
Here's an article I found in my files. Given the approach of the New Year, now is an excellent time to re-enforce those good trading habits and thoughts ... enjoy!!
How many pips do you need to be wealthy? The answer may surprise you.
About 2 years ago I sent out a similar letter that changed the outlook and the lives of many traders. While most at the time were mini-traders a simple 25 pip gain equated to a mere $25.00. "How can I live off of that?" I was repeatedly asked. It didn't take long to put this into perspective.
Determining Percent Return
Profits are one thing, percent return is another. Monthly profits may add up to look nice or not so nice, but what is the actual return? I am sure we have all heard traders say, "I made 1,000 pips last month." OK.. what was your percent return? Not only for one month, but for the life of your trading.
Return Calculation
The simple return calculation is used to determine your return on an investment after you sold it. Or in this case, the profits after closing trades over a period of time.
Here is the formula:
Net Proceeds /Cost Basis - 1 x 100
Let's run through a simple example.
Suppose you traded one standard forex contract for a profit of 200 pips. This would be a raw profit of $2,000. The cost in this case was the spread and the margin needed to secure the contract; the most common margin is 100:1. Thus it cost a temporary, $1,000 to secure this contract. We say temporary because we all know we would not trade without a stop loss, most likely the stop would have been worth about $250.
Calculation:
Net Proceeds = $2000
Cost Basis = $20 (spread) + $1,000 margin
($2,000 /$1,020 - 1) x 100 = 96% (Just under 100% in a single 30 days)
What about per year?
Try it, you will be amazed. Hint: Don't forget to compound.
Take Home Message
Trade conservatively, a few 25 pip trades per week (300 pips per month) on a single lot can give you a return of just under 200% a month. Build your account slowly, trade with the same level of caution, just add more lots. This is the best method, the most realistic method and the lowest stress method of enjoying the rewards of forex.
John Keister
ForexInterBank
Happy Trading from ForexJourney.com!!
Thursday, December 27, 2007
Clarity
Clarity. This is my word, my mission for 2008. I am going (notice I did not say “try to”), let me repeat, I am going to achieve clarity in all aspects of life including my trading. As many of my readers know I had a very eventful 2007. I became a dad for the first time. This has brought a new meaning to life. One that many of my friends have mentioned, but one I truly didn’t understand until I experienced it myself. It has been the greatest single joy of my life, not to mention a major adjustment in trading schedule.
I define have one simple New Year’s resolution that will permeate my life and my trading – seek clarity in every aspect of my Forex trading and perform every action with intent!
I know what you are thinking; it seems kind of pie in the sky, but think about it. We should approach all our actions with clarity and intent. Design the outcome well before we enter a currency trade. Keeping mental focus it what really separates long term profits and losses.
I encourage each of you to take the time now and revisit your Forex trading plan. Learn from your mistakes, because they are your most valuable teachers. My goal is to always present clear intent into my Forex trading in 2008, what’s your intent?
Happy New Year’s from ForexJourney.com
Saturday, December 1, 2007
Why the Fed is Such a Lousy Wizard of Oz
Interesting article by Susan C. Walker - check it out!
By Susan C. Walker, Elliott Wave InternationalSeptember 7, 2007
Central bankers who "follow the yellow brick road" end up in Jackson Hole, Wyoming, every Labor Day weekend for their annual symposium sponsored by – who else? – the Kansas City Fed. (Who can forget Judy Garland saying to her little dog, "Toto, I've got a feeling we're not in Kansas anymore," in the 1939 movie, The Wizard of Oz?)
The Jackson Hole Resort serves as the Federal Reserve's equivalent of the Emerald City, as Fed governors and presidents meet with central bankers and economists from around the world to discuss economic issues. This year, the symposium focused on housing and monetary policy. Usually, the Fed chairman kicks off the symposium and, this year, the new chairman, Ben S. Bernanke, did the honors. He closed his speech with these words:
"The interaction of housing, housing finance, and economic activity has for years been of central importance for understanding the behavior of the economy, and it will continue to be central to our thinking as we try to anticipate economic and financial developments."
Then came the other speeches. And it seems that some of the guests in Emerald City were waiting for their chance to pull back the curtain and prove that the Wonderful Wizard of Oz isn't such a wizard after all. Bloomberg reported that "Federal Reserve officials, wrestling with a housing recession that jeopardizes U.S. growth, got an earful from critics at a weekend retreat, arguing they should use regulation and interest rates to prevent asset-price bubbles." Apparently, one academic paper presented at Jackson Hole graded the Fed an 'F' for the way it has handled the repercussions from the rise and fall of the housing market.
Truth be told, these folks are a little late to the table as critics of the Fed. We're glad they're joining us, but here's what they still haven't learned: It isn't because the Federal Reserve messes up by allowing credit, asset and stock bubbles to form that it's not a wizard. The Federal Reserve isn't a wizard for one particular reason that it doesn't want anybody to know – and that is that the Fed doesn't lead the financial markets, it follows them.
People everywhere want to believe in the Fed's wizardry. But all this talk about how the Fed will be able to help the U.S. economy and hold up the markets by cutting rates now is as much hooey as the Wizard of Oz promising Dorothy, the Scarecrow, the Tin Man and the Cowardly Lion that he could give them what they wanted: a return to Kansas, a brain, a heart, and courage. Because when the Fed does do something, it always comes after the markets have already made their moves.
If you don't believe it, you should look at one chart from the most recent Elliott Wave Financial Forecast. It compares the movements in the Fed Funds rate with the movements of the 3-month U.S. Treasury Bill Yield. What does it reveal? That the Fed has followed the T-Bill yield up and down every step of the way since 2000. And the interesting question becomes this: Since the T-bill yield has dropped nearly two points since February, how soon will the Fed cut its rate to follow the market's lead this time?
[Editor's note: You can see this chart and read the Special Section it appears in by accessing the free report, The Unwonderful Wizardry of the Fed.]
We've got our own brains, heart and courage here at Elliott Wave International, and we've used them to explain over and over again that putting faith in the Fed to turn around the markets and the economy is blind faith indeed.
"This blind faith in the Fed's power to hold up the economy and stocks epitomizes the following definition of magic offered by Teller of the illusionist and comedy team of Penn and Teller: a 'theatrical linking of a cause with an effect that has no basis in physical reality, but that – in our hearts – ought to be.'" [September 2007, The Elliott Wave Financial Forecast]
Because, you see, what makes the markets move has less to do with what the unwizardly Fed does and more with changes in the mass psychology of all the people investing in those markets. The Elliott Wave Principle describes how bullish and bearish trends in the financial markets reflect changes in social mood, from positive to negative and back again. To extend the metaphor: The Fed can't affect social mood anymore than the Wonderful Wizard of Oz could change the direction of the wind that brought his hot air balloon to the Land of Oz in the first place.
As our EWI analysts write, "With respect to the timing of the Federal Reserve Board rate cuts, we need to reiterate one key point. The market, not the Fed, sets rates." Being able to understand this information puts you one step closer to clicking your ruby red shoes together and whispering those magic words: "There's no place like home." Once you land back in Kansas, your eyes will open, and you will see that an unwarranted faith in the Fed was just a bad dream.
Susan C. Walker writes for Elliott Wave International, a market forecasting and technical analysis company. She has been an associate editor with Inc. magazine, a newspaper writer and editor, an investor relations executive and a speechwriter for the Federal Reserve Bank of Atlanta. Her columns also appear regularly on FoxNews.com.
Friday, November 16, 2007
Hedging -Zero Risk
Hedging -Zero Risk
Hedging is defined as holding two or more positions at the same time, where the purpose is to offset the losses in the first position by the gains received from the other position.
Usual hedging is to open a position for a currency A, then opening a reverse for this position on the same currency A. This type of hedging protects the trader from getting a margin call, as the second position will gain if the first loses, and vice versa.
However, traders developed more hedging techniques in order to try to benefit form hedging and make profits instead of just to offset losses.
In this page, we will discuss, some of the hedging techniques.
1. 100% Hedging.
This technique is the safest ever, and the most profitable of all hedging techniques while keeping minimal risks. This technique uses the arbitrage of interest rates (roll over rates) between brokers. In this type of hedging you will need to use two brokers.
One broker which pays or charges interest at end of day, and the other should not charge or pay interest. However, in such cases the trader should try to maximize your profits, or in other words to benefit the utmost of this type of hedging.
The main idea about this type of hedging is to open a position of currency X at a broker which will pay you a high interest for every night the position is carried, and to open a reverse of that position for the same currency X with the broker that does not charge interest for carrying the trade. This way you will gain the interest or rollover that is credited to your account.
However there are many factors that you should take into consideration.
a. The currency to use. The best pair to use is the GBPJPY, because at the time of writing this article, the interest credited to your account will be 24 usd for every 1 regular long lot you have. However you should check with your broker because each broker credits a different amount.
The range can be from $10 to $26.
b. The interest free broker. This is the hardest part. Before you open your account with such a broker, you should check the following: i. Does the broker allow opening the position for an unlimited time? ii. Does the broker charge commissions?
Some brokers charge $5 flat every night for each lot held, this is a good thing, although it seems not. Because, when the broker charges you money for keeping your position, the your broker will likely let you hold your position indefinitely.
c. Equity of your account. Hedging requires lots of money. For example, if you want to use the GBPJPY, you will need 20,000USD in each account. This is very necessary because the max monthly range for GBPJPY in the last few years was 2000 pips.
You do not want one of your accounts to get a margin call. Do not forget that when you open your 2 positions at the 2 brokers, you will pay the spread, which is around 16 pips together. If you are using 1 regular lot, then this is around 145 usd.
So you will enter the trades, losing 145 usd. So you will need the first 6 days just to cover the spread cost. Thus if you get a margin call again, you will need to close your other position, and then transfer money to your other account, and then re-open the positions. Every time this happens, you will lose 145 usd!
It is very important not to get a margin call. This can be maintained by a large equity, or a fast efficient way to transfer money between brokers.
d. Money management. One of the best ways to manage such an account is to monthly withdraw profits and balancing your positions.
This can be done by withdrawing the excess from one account, take out the profits, and depositing the excess into the losing account to balance them. However, this can be costly.
You should also check with your broker if he allows withdrawals while your position is still open. One efficient way of doing this is using the brokerage service withdrawals which is provided by third party companies.
Hedging is defined as holding two or more positions at the same time, where the purpose is to offset the losses in the first position by the gains received from the other position.
Usual hedging is to open a position for a currency A, then opening a reverse for this position on the same currency A. This type of hedging protects the trader from getting a margin call, as the second position will gain if the first loses, and vice versa.
However, traders developed more hedging techniques in order to try to benefit form hedging and make profits instead of just to offset losses.
In this page, we will discuss, some of the hedging techniques.
1. 100% Hedging.
This technique is the safest ever, and the most profitable of all hedging techniques while keeping minimal risks. This technique uses the arbitrage of interest rates (roll over rates) between brokers. In this type of hedging you will need to use two brokers.
One broker which pays or charges interest at end of day, and the other should not charge or pay interest. However, in such cases the trader should try to maximize your profits, or in other words to benefit the utmost of this type of hedging.
The main idea about this type of hedging is to open a position of currency X at a broker which will pay you a high interest for every night the position is carried, and to open a reverse of that position for the same currency X with the broker that does not charge interest for carrying the trade. This way you will gain the interest or rollover that is credited to your account.
However there are many factors that you should take into consideration.
a. The currency to use. The best pair to use is the GBPJPY, because at the time of writing this article, the interest credited to your account will be 24 usd for every 1 regular long lot you have. However you should check with your broker because each broker credits a different amount.
The range can be from $10 to $26.
b. The interest free broker. This is the hardest part. Before you open your account with such a broker, you should check the following: i. Does the broker allow opening the position for an unlimited time? ii. Does the broker charge commissions?
Some brokers charge $5 flat every night for each lot held, this is a good thing, although it seems not. Because, when the broker charges you money for keeping your position, the your broker will likely let you hold your position indefinitely.
c. Equity of your account. Hedging requires lots of money. For example, if you want to use the GBPJPY, you will need 20,000USD in each account. This is very necessary because the max monthly range for GBPJPY in the last few years was 2000 pips.
You do not want one of your accounts to get a margin call. Do not forget that when you open your 2 positions at the 2 brokers, you will pay the spread, which is around 16 pips together. If you are using 1 regular lot, then this is around 145 usd.
So you will enter the trades, losing 145 usd. So you will need the first 6 days just to cover the spread cost. Thus if you get a margin call again, you will need to close your other position, and then transfer money to your other account, and then re-open the positions. Every time this happens, you will lose 145 usd!
It is very important not to get a margin call. This can be maintained by a large equity, or a fast efficient way to transfer money between brokers.
d. Money management. One of the best ways to manage such an account is to monthly withdraw profits and balancing your positions.
This can be done by withdrawing the excess from one account, take out the profits, and depositing the excess into the losing account to balance them. However, this can be costly.
You should also check with your broker if he allows withdrawals while your position is still open. One efficient way of doing this is using the brokerage service withdrawals which is provided by third party companies.
How To Recognize a Financial Mania When You're Smack Dab in the Middle of One
By Susan C. Walker, Elliott Wave International
November 12, 2007
When you're caught in the middle of a bad storm, you don't really care whether it's a tropical depression or a full-strength hurricane. You just know you're hanging on for dear life. The same idea applies to financial markets. When a market is trending up strongly, it's hard to tell whether it's just a bull market or a more dangerous financial mania.
The recent tremendous ride up for global and U.S. financial markets, including the Dow, looks and feels more like a mania than a mere bull, says Elliott Wave International analyst Peter Kendall. This distinction is important to recognize in the rising stage, because manias always result in a crash that takes them back beneath their starting point.
Kendall recently published his research into current financial manias throughout the world in SFO (Stocks, Futures and Options) magazine. The article, titled "Financial Manias and the Trade of a Lifetime," suggests an even more stunning finish for the current manias: "The speed and global scope of the unfolding credit crisis suggest that most of the fast-rising markets of the last decade will crash in unison," he writes.
He also discusses current manias, such as the Nikkei, which has yet to return to its start after a manic rise to its all-time high in December 1989, and the Dow, which reversed from its rise in 2000 but made a U-turn in 2002. The starting point for the Dow's mania as shown in the chart included in the article is at the 1000 level.
Kendall, who is also writing a book about financial manias, titled The Mania Chronicles, describes five telltale signs that help an investor to tell the difference between a regular bull market and a mania. It's a mania if:
1. There is no upside resistance, and rising prices seem to be perpetual.
2. Everyone in the market looks like an expert.
3. There is a flight from quality investments to riskier investments.
4. As financial bubbles pop in one area, they bubble up in others.
5. The crash after the peak takes back all the gains the mania made.
No. 5 can be viewed only with hindsight. But the first four signs provide essential clues to what's shaping up in the markets.
"By studying past mania experiences, traders can gain valuable insight into the collective emotions that drive their markets," writes Kendall. "It's possible to make significant money in the advancing stages of a mania with no knowledge of its existence. But there is nothing like recognizing a mania for what it is in real time to help a trader keep those gains and deal with the relentless crash after it peaks."
In the last part of the SFO article, he asks the key question, Are we at the peak yet? Find out his answer by reading the whole article for yourself.
Susan C. Walker writes for Elliott Wave International, a market forecasting and technical analysis company. She has been an associate editor with Inc. magazine, a newspaper writer and editor, an investor relations executive and a speechwriter for the Federal Reserve Bank of Atlanta. Her columns also appear regularly on FoxNews.com.
November 12, 2007
When you're caught in the middle of a bad storm, you don't really care whether it's a tropical depression or a full-strength hurricane. You just know you're hanging on for dear life. The same idea applies to financial markets. When a market is trending up strongly, it's hard to tell whether it's just a bull market or a more dangerous financial mania.
The recent tremendous ride up for global and U.S. financial markets, including the Dow, looks and feels more like a mania than a mere bull, says Elliott Wave International analyst Peter Kendall. This distinction is important to recognize in the rising stage, because manias always result in a crash that takes them back beneath their starting point.
Kendall recently published his research into current financial manias throughout the world in SFO (Stocks, Futures and Options) magazine. The article, titled "Financial Manias and the Trade of a Lifetime," suggests an even more stunning finish for the current manias: "The speed and global scope of the unfolding credit crisis suggest that most of the fast-rising markets of the last decade will crash in unison," he writes.
----------------------------------------------------------------
Editor's note: Elliott Wave International invites you to read the full five-page article with charts from the October 2007 SFO magazine by Elliott Wave International's Pete Kendall called "Financial Manias and the Trade of a Lifetime."---------------------------------------------------------------
As co-editor of The Elliott Wave Financial Forecast, Kendall searches for trends that help traders to move in and out of markets. By comparing other historic manias with the impressive rise of the DJIA since the late 1970s, he focuses on the skyscraper pattern that they all have in common. The four historical manias are the Dutch Tulip mania of the 1630s, the South Sea bubble of 1720, the U.S. stock crash of 1921-1932 and the dot.com bust of the 1990s and early 2000s. Once you can see the similarities, you will be better prepared to face the music when the crash comes. As Kendall writes, "once the belief that the markets will always rise becomes widespread, it actually signals the start of a price swing that tends to be a career-breaker for any trader who tries to oppose it."He also discusses current manias, such as the Nikkei, which has yet to return to its start after a manic rise to its all-time high in December 1989, and the Dow, which reversed from its rise in 2000 but made a U-turn in 2002. The starting point for the Dow's mania as shown in the chart included in the article is at the 1000 level.
Kendall, who is also writing a book about financial manias, titled The Mania Chronicles, describes five telltale signs that help an investor to tell the difference between a regular bull market and a mania. It's a mania if:
1. There is no upside resistance, and rising prices seem to be perpetual.
2. Everyone in the market looks like an expert.
3. There is a flight from quality investments to riskier investments.
4. As financial bubbles pop in one area, they bubble up in others.
5. The crash after the peak takes back all the gains the mania made.
No. 5 can be viewed only with hindsight. But the first four signs provide essential clues to what's shaping up in the markets.
"By studying past mania experiences, traders can gain valuable insight into the collective emotions that drive their markets," writes Kendall. "It's possible to make significant money in the advancing stages of a mania with no knowledge of its existence. But there is nothing like recognizing a mania for what it is in real time to help a trader keep those gains and deal with the relentless crash after it peaks."
In the last part of the SFO article, he asks the key question, Are we at the peak yet? Find out his answer by reading the whole article for yourself.
Susan C. Walker writes for Elliott Wave International, a market forecasting and technical analysis company. She has been an associate editor with Inc. magazine, a newspaper writer and editor, an investor relations executive and a speechwriter for the Federal Reserve Bank of Atlanta. Her columns also appear regularly on FoxNews.com.
Sunday, October 7, 2007
-New Trader Strategy..
Here I will take a simple system and apply it everyday to the Forex market. By following along, I hope that you'll be able to use this as a guide for following your own trading system each and every day. But before you follow along, here is a little background on the system that I will be trading. Actually this syetem has been widely spread over the internet but I want to tell you that it really works. The first system I used for trading is the following system.
The Main Trend Is Your Friend
The main concept of the theory is to catch small trends during the day while avoiding fakeouts. Simple right? Wrong! It's easier said than done. I will be making my trades off of a 15 minute chart, but I will be using a 4hr. chart to give me my main trend. If my 4hr. chart is trending up, then I will only be looking to go long on the 15 minute chart. On the other hand, if my 4hr. chart is trending down, then I will only be looking to go short on the 15 minute chart. By looking at the main trend first, I will have a better chance for a winning trade by moving along with the current market direction.
4hr. Chart Settings:
• 5 EMA applied to the close
• 10 EMA applied to the close
• Stochastics (10,3,3)
• RSI (9)
After establishing the main trend , it's time to look for trade entries on the 15 minute chart. The 15 minute chart looks similar to the 4hr. chart, except for the fact that I have added a MACD histogram. The trade entry rules are simple:
The 15 Minute Chart
• 5 EMA applied to the close
• 10 EMA applied to the close
• RSI (9)
• Stochastics (10,3,3)
• MACD Histogram (12,26,9)
Long Signal:
• 5 EMA must cross above the 10 EMA (Indicated on chart by a black candle)
• RSI must be greater than 50
• Stochastics must be headed up and not in overbought territory
• MACD histogram must go from negative to positive OR be negative and start
to increase value. (We want to catch trends early so the MACD histogram
must be negative)
Short Signal:
• 5 EMA must cross below the 10 EMA (Indicated on chart by
a purple candle)
• RSI must be less than 50
• Stochastics must be headed down and not in oversold territory
• MACD histogram must go from positive to negative OR be positive
and start to decrease in value. (We want to catch trends early
so the MACD histogram must be positive)
Stop Losses
There is not a hard number that I use for a stop loss. Instead I use either the most recent swing low (for long trades) or the most recent swing high (for short trades) as my stop loss. Using the examples above, this is where I would place my stops:
In these examples, the stop losses were not that wide. However, there will be times when the most recent swing high or low is several pips away from your entry. This is where you must be careful. If the stop is too wide for you to keep within your money management rules, simply stay out of the market! Trust me, there will always be another trade later. Even if that trade happens to win a gazillion pips, you should never compromise or doubt your decision to follow strict money management.
Happy trading
The Main Trend Is Your Friend
The main concept of the theory is to catch small trends during the day while avoiding fakeouts. Simple right? Wrong! It's easier said than done. I will be making my trades off of a 15 minute chart, but I will be using a 4hr. chart to give me my main trend. If my 4hr. chart is trending up, then I will only be looking to go long on the 15 minute chart. On the other hand, if my 4hr. chart is trending down, then I will only be looking to go short on the 15 minute chart. By looking at the main trend first, I will have a better chance for a winning trade by moving along with the current market direction.
4hr. Chart Settings:
• 5 EMA applied to the close
• 10 EMA applied to the close
• Stochastics (10,3,3)
• RSI (9)
After establishing the main trend , it's time to look for trade entries on the 15 minute chart. The 15 minute chart looks similar to the 4hr. chart, except for the fact that I have added a MACD histogram. The trade entry rules are simple:
The 15 Minute Chart
• 5 EMA applied to the close
• 10 EMA applied to the close
• RSI (9)
• Stochastics (10,3,3)
• MACD Histogram (12,26,9)
Long Signal:
• 5 EMA must cross above the 10 EMA (Indicated on chart by a black candle)
• RSI must be greater than 50
• Stochastics must be headed up and not in overbought territory
• MACD histogram must go from negative to positive OR be negative and start
to increase value. (We want to catch trends early so the MACD histogram
must be negative)
Short Signal:
• 5 EMA must cross below the 10 EMA (Indicated on chart by
a purple candle)
• RSI must be less than 50
• Stochastics must be headed down and not in oversold territory
• MACD histogram must go from positive to negative OR be positive
and start to decrease in value. (We want to catch trends early
so the MACD histogram must be positive)
Stop Losses
There is not a hard number that I use for a stop loss. Instead I use either the most recent swing low (for long trades) or the most recent swing high (for short trades) as my stop loss. Using the examples above, this is where I would place my stops:
In these examples, the stop losses were not that wide. However, there will be times when the most recent swing high or low is several pips away from your entry. This is where you must be careful. If the stop is too wide for you to keep within your money management rules, simply stay out of the market! Trust me, there will always be another trade later. Even if that trade happens to win a gazillion pips, you should never compromise or doubt your decision to follow strict money management.
Happy trading
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