One of the swing trades I did in forex last month was buying the Canadian dollar against the Japanese Wrong way risk investopedia forex. Shortly after opening the position though, my stop loss was hit.
I can’t think of anything worse in trading. That’s when market hits your stop loss and carries on to confirm your prediction! The problem was that I wasn’t aware of this stop loss strategy. And here’s how being social in the trading world helps your performance. Not to mention enriching your knowledge!
My trading idea would have been forgotten if it weren’t for another trader commenting on the chart! It had resulted in a loss. I went back to my original chart. It turned out that, if my stop loss had been set a bit further below my entry price, the trade would indeed be a profitable one! But what is an ATR stop? Upon searching for the term at Google, Investopedia’s article came up. So, let’s see how I should have used the ATR stop method on this particular trade.
The ATR indicator helps to identify volatility over a specified period of time. A higher ATR indicates a more volatile market while a lower ATR indicates a less volatile market. 18 and set the stop loss at 97. Hence, I should have set the stop loss at 65 pips below the entry price, instead of 14. JPY price would have hit the profit target a week later. Sure that wouldn’t entitle me to win the Bullseye award.
Yet, my trading account would welcome the profit! But that would be counter measured by the increased winning trades. I’m always after the latter, which will result in less variance to my trading capital. If you find your stop loss getting hit more than expected, give the ATR stop method a go.