Trade Management: Trailing Stops
Trade Management, how to make adjustments as your trade moves in your favor, has become a hot topic in recent LIVE webinars.
One of the methods that I personally employ when managing a trade is trailing the stop manually.
The chart below will walk you through the process of manually trailing the stop on a trade as price advances in an uptrend on this EURUSD 4 hour chart…
The trade begins when a trader takes a long position based on a Slow Stochastics crossover signaling a buy. When the trade is entered at that point, the stop is located at the level labeled “Initial Stop”.
As the trade progresses to the upside, and as price action takes out each successive high, the stop is moved up to the next higher low.
Looking at the chart for example, when price moves above the high labeled #1, the stop is moved from the Initial Stop level to Stop #1. As price takes out the next high at #2, the stop is trailed from Stop #1 to Stop #2. This procedure continues as long as price continues to advance and make higher highs and higher lows.
We can see, however, that price retraces below Stop #4 thereby taking the trader out of the trade with a profit of about 325 pips.
Even though the retracement took out the previous low at Stop #4, the uptrend on the pair is still intact.
With that in mind, the trader can re-enter the trade when price takes out the previous high at #5. When price trades above that high, the stop would then be placed below the previous low at Stop #5.
When price takes out the next high at #6, the entire process begins again.
Trailing a stop in trading can be a very effective strategy to “lock in” profit as the trade progresses… in this case to the upside. It is important, however, not trail the stop too closely behind the current price at which the pair is trading. This method of manually trailing the stop based on the previous low in an uptrend provides the trader with a critical guideline. While it certainly will not prevent stop outs, it will permit the trade to have a bit more room in which to develop.
In the case of a downtrend, the strategy would be reversed as the pair made lower highs and lower lows.
Developing a profit strategy and setting a protective stop is inevitable in every investment. Just as protection of capital or the money you invest is important, so also is necessary the protection of your profits for the money earned. In due analysis of the most effective exit systems, it is found that as the price of stock increases, you can move the stop loss higher. And in case of downtrend, the price will trigger the stop and a sell order will be executed. However, the basics of successful trading lies in the fact as to how close to the price the stop should be set. While setting the stop loss, care should be taken that stops are not set too close to the current price. Because, there remains a possibility that the variation that takes place in the market can set off a stop, even if not a real downtrend in price. While people do a lot of research on the kind of investments, they should make and do a lot of work and diligence on when and where to buy; it is exit strategies that most of them give a slip. However, it is one of the fundamentals of investment as it is impossible to plan future investments and trading unless you specifically know how you are going to take your profits and make an exit. Just as we all know that, stock prices always follow corporate earnings, resulting because of stock investing and buying by traders when companies are making money, thereby propelling stock prices higher. Similarly, in event of companies showing slower earnings growth, stocks fall. All you need to do for successful exits is to chalk out practical exit strategies for setting stop. A few of the most implemented strategies are defensive market timing, hedging bets and to think globally. While traders are more focused trying to make big profits, the larger issue is however to avert bigger losses. There are ways to undermine the best time to sell, from using technical analysis techniques like moving averages, etc. You can use defensive market timings by placing defensive stop losses. In this method, your broker can be instructed to sell shares on hitting a predetermined level. Considering the strategy of hedging bets, it is found difficult to hedge a collection, with a range of arrangements that balance each other out. However, there is always the alternative known as inverse funds, which are designed to rise in value even when the stock market goes down. And in cases even when the funds falls, on the occasion of stock market rise, they can tender security without compelling you to sell your existing positions. In the most adventurous trading, you can think globally for setting stop and target. In case, stock prices pursue earnings, the best way to defend your stock portfolio is to make sure to go along with companies, whose earnings are on the rise. Similarly, if U.S stocks are not doing well, traders can always look out for options in the Asian Markets and vice versa.
The most significant part of a forex trader’s life is his broker or trading platform. A wrong forex trading platform can ruin all your game and eventually your money too. Therefore, before you end up with a low-quality forex broker, we bring you the best yet efficient forex trading platforms. Here is the list of top nine forex traders 2020. 9 Top Forex Broker in Europe 2020 1 IG: IG has been in the forex broking game for 40 years, and it has nothing to complain. The minimum account balance is 0 Euros; it offers a comprehensive variety of products and financial instruments for trading, and the spread charges are one of the lowest. Moreover, this forex broker is regulated by several financial authority bodies, including UK’s FCA, Australia’s ASIC, USA’s CFTC, and Monetary Authority of Singapore. With over 195,000+ users worldwide, no doubt, why it is number one on the list. 2 Oanda: Established in 1990, Oanda is one of the oldest and well-reputed companies on our list. Moreover, it is the only firm which deals only in forex and not anything else. However, it doesn’t halt its way of becoming a multi-national firm. Oanda has its customer bases in the UK, Singapore, Canada, Australia, Europe, and the USA. Further, the organization is known for its transparent trades, precise information, straight forward price and fees, and quality of service. Also, the minimum deposit with them is 0 Euros, and the regulations are under CFTC, IIROC, FCA, ASIC, and MAS (Singapore). 3 XTB: If you’re looking for an all in one trader, then you can go with XTB. Their services are spread through a variety of whopping 1500 markets such as forex, crypto, CFD, stocks, Indices, metals and commodities. The organization is based in the UK and regulates under FCA. However, the good doesn’t come for free; it has a minimum deposit amount of $250 to start trading. 4 Saxo Bank: Don’t fall for the broker’s name, Saxo Bank was started back in 1992 and is a Danish investment and trading bank. It is safe and secure to trade with as they are regulated by two major financial bodies, namely, FCA and FSA. Moreover, there are no fees and commission for any trades executed but has an inactivity charge. Also, the minimum deposit varies from country to country for this forex broker. Thus, make sure you check for yours. 5 Pepperstone: Pepperstone is a leading Australian forex broker which operates globally. It is a top-quality forex broker, headquartered in Melbourne, which offers trade-in 150+ financial assets accessible through a variety of platforms, including Meta Trader 4. Although they claim their spreads to be as low as 0 Euros, honestly, we haven’t seen it yet. The minimum deposit for them is 200 Australian Dollars. 6 London Capital Group: LCG or London capital group is a multi-asset online trading platform which offers stunning services at no extra charges and low spread fees. Moreover, their no negative balance protection system allows the users not to trade more than their deposit amount, which is a good initiative. Further, you will experience the best mobile application and browser services with them. The switch between the web and the app is effortless, fast, and smooth with delightful interface and design. 7 City Index: City Index is another name of GAIN capitals, which is the biggest retail trading broker all over the world. The name City Index, founded in 1983, lists on the New York Stock Exchange. Thus, we don’t need to tell the vast regulations and country scope of it. The best thing about City Index is their research and analysis tools, and 24/7 quick customer support team. 8 Forex.com: Forex.com is suitable for traders and investors of all level. Established in 2001, this young organization is taking over and acquiring several other firms too. High technology, secure interactive screen, several full trading platforms and competitive fee structure is what makes forex.com an excellent counterpart to its big competitors. 9 CMC: If you are a professional trader and looking for a reliable site, specially made for experienced users, then CMC is the destination for you. One would get real-time news, high-quality tools and indicators; several order types, and many other perks with them. But, remember, their spread charges are not as competitive as our other brokers on the list. Make sure to check them. Final Say So, this was the list of best forex brokers 2020. All these brokers are safe, secure, and regulated under authentic financial bodies. However, the best broker for you would be the one which fills your needs and requirements. Moreover, keep in mind that low-cost broker is not necessarily the best one. If you are looking for top-notch service, then learn to pay for that too!
Price action trading is the only true leading indicator in trading. You’ve probably heard that before, if you’ve traded for any length of time. What you may or may not have heard is that price action trading alone is generally not all that meaningful. However, when you combine price action trading with traditional western indicators, you can eliminate many of the false signals given by pure price action. This is the way that I personally incorporate price action into my own trading. I’ve studied many price action courses, and have found that taking price action alone is not consistently profitable. Others may have results that say otherwise, but even the leader in price action education, Steve Nison, advocates combining western indicators with price action trading. Two Schools of Thought Purists: Many traders believe that price action trading alone is the only way to trade. This crowd typically trades with clean charts, using only Japanese candlesticks in combination with support and resistance. Other traders in this category include trend lines, channels, and sometimes supply and demand zones; but they never add traditional western technical indicators. These traders generally take end of day signals, but sometimes trade the 4 hour charts and above. Of course there are exceptions, but the general consensus is that signals that occur on longer term time frames are more meaningful. In my experience, I would have to agree with this assessment. Everyone else: Other price action traders like to combine western technical indicators to their trading to help qualify the best signals. This group of traders use all of the techniques of the first school of price action traders, yet they often combine price action with indicators like the stochastic oscillator, RSI, MACD, bollinger bands, etc… and many combinations of western indicators. Many times these traders will also add moving averages to their charts for dynamic support and resistance levels, or to help them determine the strength and direction of the trend. These traders may also trade end of day signals, or shorter time frames like the 4 hour charts. However, since many of these traders, like myself, are adding price action trading as just one piece to their overall trading system, many are not as interested in trading the longer time frame charts. The reason for this is because the “stars align” less often in a trading system that uses multiple confirming indicators, providing fewer trading signals in any given time frame. Many traders in this second school prefer shorter time frame charts like the 5 minute, 15 minute, 1 hour, etc…. Since we are not depending purely on price action, and are seeking more trading signals over any given time, this can be a viable option combined with the right trading system. Note: Most recently, I’ve been using the 5, 15, and 45 minute time frames together as my preferred charts. That being said, I personally check multiple time frames up to and including the daily charts, for those occurrences where all of the “stars align” – however less often that might be. Some Examples of Price Action Trading with Indicators In my own trading, I use the Top Dog Trading system in combination with profitable price action techniques that I’ve learned over time – most of which I picked up from the teachings of Steve Nison. In the Top Dog Trading system, we use the stochastic indicator for determining cycle highs and lows. This can be very useful when qualifying certain price action signals. In the picture above, you’ll see two occurrences of the hammer candlestick formation. The first hammer (pictured on the left) did not work out. You would have been stopped out if you had placed your stop loss one pip below the bottom of that hammer. Using the stochastic oscillator would have given you a clear signal to stay out of the first trade, because the hammer occurred during a cycle high (according to the indicator) and near the overbought level (80). Since the hammer is a bullish reversal signal, we would prefer the stochastic indicator to be in or near the oversold area (20). This would have been one indication to stay out of that trade. The second hammer formation (pictured on the right) worked out nicely. Price never came close to taking the stop loss out before surging upward. In this case, the stochastic oscillator indicated that price was making a cycle low and was near the oversold level (20). Let’s take a look at another example. In the picture above, you’ll see two bearish engulfing patterns. One of these patterns worked out, and the other would have been stopped out. The first pattern (pictured on the left) would have worked out nicely. A supporting signal came from the RSI oscillating indicator, since the RSI had recently crossed above the oversold area (70). The second bearish engulfing pattern (pictured on the right) would have been stopped out. An indication to stay out of this trade could have been taken from the RSI indicator. The RSI at the point of the this signal was not in the overbought area (70). Since the bearish engulfing pattern is a bearish reversal signal, we would prefer to see an indication that price is at or above the overbought area. Note: Many traders use different levels to signify overbought and oversold areas with the RSI. 80 and 20 respectively are other popular levels, but some traders even use 90 and 10. I don’t trade with the RSI anymore, although I did use it often in the beginning of my trading career. I’ve found the stochastic and MACD indicators to be more accurate for the purposes of my favorite trading setups. I hope I’ve been able to shed a little light on the debate between whether or not you should use indicators with price action trading. In my opinion, some indicators are great – even having the ability to give trading signals by themselves. The Top Dog Trading system, for instance, has a whole catalog of stochastic indicator patterns, called “second chance” patterns, that are very accurate for calling absolute cycle highs and lows in price. I’ve also found price action trading like supply and demand zones, Japanese candlestick formations, multiple candlestick patterns, etc… to be very useful and accurate in my own trading. My question to you is: Why would anyone settle for using one or the other when they can utilize both price action trading and useful indicators?