In terms of FX trading there is a mistake that traders continue to make and if you make it too, you will end up on the vast majority of losers. Let's look at the mistake in more detail.

New Forex traders come into the market believing, they can trade with small risk and still make big gains. They try and use 10 – 30 pip stop losses and they lose, a look at the volatility of currencies, shows this strategy is doomed to failure.

Standard Deviation of Price and Random Volatility

Prices in Forex pairs in a day, will tend to move more than 30 pips and on many days it's a 100 pips or more. ALL volatility in the daily time frame is of a random nature, so all the traders who are trading with tight stops are doing is trading the random noise of the market and their stops continually get hit. If there lucky enough to get a winner, its never big enough to cover their losses and the end result is a wipe out of equity.

I have heard all about how prices move to some order which is mathematical or mystical but its rubbish – if there really was a way of predicting prices in he short or long term there would be no market, as we would all know the price in advance.

Why Trading with Tight Stops Did Work But Doesn't Now

In the days before the internet, day traders and scalpers could make money with tight stops because - professional and floor traders had the price before the vast majority of people and they used this small time window, to make a quick profit. This advantage has now gone and we all have instant price info at the click of a mouse.

The Rise of the Get Rich Quick with Low Risk Strategy Sellers

Of course, as internet currency trading has grown in popularity, so to has the number of get rich quick schemes which offer naïve and greedy traders, systems which claim you can make a living trading with low risk and high reward and you can even trade with 90% accuracy!

Of course this is rubbish and even the top traders in the world don't have a 90% hit rate and neither do they trade with stops within random volatility.

People are always looking to make big profits with low risk and the strategies and courses sold online, feed this greed but the trader gets a lesson in the reality of trading Forex and joins the 95% of losers.

How To Place Stops Correctly and Make Big Long Term Gains in FX Trading

Switch your time frame, to looking longer term and swing trade (looking for moves that last a few days to a week) or long term trend follow and look for moves which last a few weeks, months or longer and trade with “sensible” stop losses.

All trades are different but by “sensible” stops I mean - ones which are outside the market noise and normally I would look to use stops of 50 – 150 pips and look for at least a 2:1 risk to reward on swing trades and 3:1 on trend following.

If you want to make big gains, you need to avoid getting taken out on stop by the market noise and also don't look to make small gains or scalp the market – look for a bigger gain and focus longer term.

There is no way to beat the market, no mathematical order, no secret of success – you need to do what the best traders do and that's - understand Forex trading is a game of odds not certainties.

Trading short term, with tight stops looks low risk but you have no chance of winning so focus on the longer term and get your stop outside of the noise of the market and not only will you make more money, you will end up spending less time on your trading.

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