If you want to make big profits with Your Forex trading strategy, you need to know how to place Forex stops correctly. Placing stop loss protection is a delicate balance between, keeping risk low and giving the market enough room to breathe, so you are not taken out by random volatility. Most traders have no idea of the concept of placing stops and in this article, we will look at the concept of placing stops correctly to ensure maximum risk to reward.

The losing trader typically, identifies the trend correctly and gets on board, prices dip back to his stop, take him out and then continue the way he thought and he's not ion the market! This happens to all traders at some point and you need to stay in the trend. The average losing trader, has no concept on proper Forex money management - so lets look at some common errors and how to place Forex stops correctly.

Why Trying to Avoid Risk Traders Create it

Most traders are so obsessed with restricting risk, they actually create it by placing their stops to close and getting stopped out by random volatility or the market noise and they do the following

They try Forex scalping or day trading and in the time period of a day, ALL volatility is random and they lose. In longer term trends they still make the same mistake – they try and trade with 20 – 30 pip stop losses and get hit all the time.

If you are trading Forex longer term, the minimum stop loss should be 50 pips and in normal trades a 100 or more. Many traders say I can't do that on high leverage but the fact is - their putting stops to close because their leverage is to high to begin with!

Any broker will give you 200:1 or more on a trade but this is ridiculous for traders with small accounts and you really need to think about using less leverage and risking more per trade. A good figure is 10:1 with 50:1, being the maximum amount of leverage you should use.

Let the Losing 95% of Traders Get Stopped Out and Have Your Stop Behind Them

If you are confident of a trade, look where you think the majority of traders have their stops and place yours behind them – give the market room to breathe. One of the basics of holding long term trends is to “sit on heat” You have to give back open profit and go into a loss a lot of the time, to stick with the trend and this is something most traders simply cannot do.

Sitting on a trade which can last for weeks, months or years takes discipline, courage and conviction and most traders simply cannot do it but if you can you will make a lot of money.

General Guidelines on Stop Placement

There are no hard or fast rules on placing stops, all trading situations are unique. In general terms though:

In long term trends look to risk 100 – 200 pips and in swing trading 50 – 100. When trailing a stop in a long term trend look to keep it behind the 40 day moving average or nearby support or resistance level. Sure you will give a bit back at the end but that's ok, if you caught 50 -70% of every major trend, you would be very rich.

Final Words

If you don't want to take a calculated risk to make big gains – don't trade Forex. In addition, if you are not prepared to sit on open equity dips in the short term, to make longer term gains Forex trading is not for you.

To win use sensible leverage, take a meaningful risk for a large reward and have the courage and conviction to stick with your plan and if you do this, you will soon be enjoying currency trading success.