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In this video:

What measures can you take to prevent your stock loss from being hit all the time? Let’s talk about that more right now.

Hey, Forex traders, this is Andrew Mitchem here, the owner of the Forex Trading Coach with video and podcast number 387.

Stop loss placement

I want to talk about an issue that affects all of us, and it’s talking about stop loss placement and how to place your stop loss why and where, and what can you do to give yourself a higher probability chance of success within your trade and to prevent your trade from being stopped out? And this was a discussion that we had on our live clients webinar just last night my time. I was asked by a new client that’s just joined us this week, and he said, “Look, I’ve been through the course, loving the concept and how you’re going, but what measures do you put in place to help protect your stop loss?”

Examples shown on our weekly webinar And so I showed a lot of examples, as I do every week, that have stop loss protection. Now, what I mean by that is this. It’s not just placing your stop loss at X number of pips. It’s not even placing your stop loss, according to the way that we trade with fibs, extensions, and retracements, but it’s also having extra protection in place to prevent that stop loss being stopped out. Now, a perfect example of that would be to have your stop loss on a sell trade above a round number. Now, we took a trade on that webinar yesterday, and you’re going to see it on your charts. It’s on the Euro-Canadian dollar on the one hour chart on the 8th of October. And we took a sell trade, and the trade had just come down through the 156 level 1.5600. And it had broken below that level. It closed below that level.

We saw the setup that what we’re looking for, we had the trendline break in place, we had divergence, we had below the pivot point, all the things we’re looking for with a candle set up. Everything was really good there. Room to move to the profit target. But what we had is we had the ability to put our stop loss above 156, above that round number. And what that was basically saying was, on this trade, if the price then pulls back and goes to 156 and back beyond it, we get stopped out, we accept that we lose on the trade, but we have controlled low risk on that trade. So if the trade got stopped out, then we lose. We accept that. That’s part of trading. But what we also had in our favour was we knew that the 156 level had been a strong level in the past, and we knew that it was a round number, and those psychological levels are very, very important.

The benefits of having the stop loss protected by a round number

And by placing our stop loss above that level, it meant that not only did we have our stop loss above the high of the candle and a swing high, it meant that the price to go and break that strong barrier in order to take us out. And as it happened, the price dropped and it did exactly as we thought it would do, and it moved to the previous main swing low, and it gave us a three to one reward to risk trade in under three hours. In under three candles, profit target had been hit for a three to one reward to risk trade.

EUR/CAD trade makes a +1.5% account gain with low and controlled risk

Now, if you placed half of 1% of your account on that one position, you’d have made a one and a half percent account gain in under three hours. That’s pretty good. One and a half percent is an excellent return with very, very low controlled risk, high reward to risk trade, high probability trade. We already had a 12 hour chart trade on the Euro-Canadian mentioned on our membership site in the morning. That was a sell trade also.

So we had everything in favour of the trade. Plus, the important point for this lesson is the stop loss had added protection. Now, if you can get that protected, that stop loss protected, by a pivot point or a round number or a previous swing high or low, anything at all like that, the more you can add into your favour to protect your stop loss, the better. And so that’s exactly what we did, and guess what? We had the result to follow. So hope that helps.

Details about how you can learn how to take trades like this too 

If you’d like to know how we take trades like this, if you’d like to jump onto our live webinars and become a client, I’ll put a link on this post and you can find out more information from there.

So once again, this is Andrew Mitchem here, the Forex Trading Coach, helping successful Forex traders worldwide for the last 11 and a half years. Bye for now.

Episode Title: #387: How to Prevent your Stop Loss from being Hit