By Matthew Vint
If you have been trading for more than five minutes, you will understand the importance of placing stops at the time you place a trade. Protective stop/loss orders protect your trading account from being devastated by a violent market reversal. However, the question arises about when or if to move a stop once a trade has moved into the money. In classic Forex fashion, there is no real right or wrong answer and the answer actually lies within your trading plan and psychological approach to currency trading.
The first situation that may occur is that the market moves in your favor after you have placed an order and you now have the opportunity to move your stop to a position that completely protects your account. Basically giving you a neutral trade should the market move against you at a later time. The market then reverses and hits your stop/loss; therefore, you had a trade but did not make any money or lose any money other than the spread.
The second situation is the same except that you do not move your stop and while the market retraced it once again turned in your favor and continued in the direction that you originally expected and you hit your profit target and make money on the trade.
The final situation in this trifecta of trailing stops is when you place a trade and it moves in your favor. You decide not to move the stop/loss in case of a retracement and the market does retrace. However, in this instance the price continues to move against you until you are finally stopped out, producing a loss in this trade. In this instance you had a profitable trade and the chance to keep from losing money but you decided to stay the course and it cost you money.
In your analysis you must decide which of these situations is best for your style of trading. Visualizing yourself in this type of situation and considering your options and feelings in the only way you can decide. But before you place a trade you must decide on the track that you will follow. Changing your mind in the middle of a trade sets a dangerous precedent for future trades and will ultimately lead to indecision in your trading.
Again there is no right or wrong answer that you can be given. The answer will come from your trade analysis. Once you have done a number of trades you will have developed enough data to see what happens to your trades. If this type of situation occurs to you frequently, then changing the time of day you trade may stop this type of market reversal from happening to you. Only by tracking your trades and making careful notes, in your trading journal, you are able to spot this type of trouble.
In conclusion, spotting flaws in your trading system and psychology is a key to becoming a long term successful currency trader. Once you have developed this type of awareness, you will be well on your way to long term success. Never make changes on the fly. Make sure that you have a solid trading strategy that you have tested and then make changes based on how you react to changing market conditions and opportunities that you identify during your reviews.
The first situation that may occur is that the market moves in your favor after you have placed an order and you now have the opportunity to move your stop to a position that completely protects your account. Basically giving you a neutral trade should the market move against you at a later time. The market then reverses and hits your stop/loss; therefore, you had a trade but did not make any money or lose any money other than the spread.
The second situation is the same except that you do not move your stop and while the market retraced it once again turned in your favor and continued in the direction that you originally expected and you hit your profit target and make money on the trade.
The final situation in this trifecta of trailing stops is when you place a trade and it moves in your favor. You decide not to move the stop/loss in case of a retracement and the market does retrace. However, in this instance the price continues to move against you until you are finally stopped out, producing a loss in this trade. In this instance you had a profitable trade and the chance to keep from losing money but you decided to stay the course and it cost you money.
In your analysis you must decide which of these situations is best for your style of trading. Visualizing yourself in this type of situation and considering your options and feelings in the only way you can decide. But before you place a trade you must decide on the track that you will follow. Changing your mind in the middle of a trade sets a dangerous precedent for future trades and will ultimately lead to indecision in your trading.
Again there is no right or wrong answer that you can be given. The answer will come from your trade analysis. Once you have done a number of trades you will have developed enough data to see what happens to your trades. If this type of situation occurs to you frequently, then changing the time of day you trade may stop this type of market reversal from happening to you. Only by tracking your trades and making careful notes, in your trading journal, you are able to spot this type of trouble.
In conclusion, spotting flaws in your trading system and psychology is a key to becoming a long term successful currency trader. Once you have developed this type of awareness, you will be well on your way to long term success. Never make changes on the fly. Make sure that you have a solid trading strategy that you have tested and then make changes based on how you react to changing market conditions and opportunities that you identify during your reviews.
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