FX New Traders Tip – Learning to Trade – Where to Place Your Stops.

Trading Strategy

New traders often identify areas of support and resistance as potentially good areas to work stop orders as part of their trading strategies. The reality is that bank traders make an excellent living spiking these zones and taking new traders out of the market. It may only be by a couple of pips but that is all that is needed most of the time. Unfortunately, some systems and trading strategies actually encourage you to place stop orders around these levels as a way of taking advantage of support and resistance. The other issue we face with our orders working at these levels is that we typically see slippage on a breakout of support or resistance. This occurs when we see a built up of pressure between our buys and sellers with eventually the market breaking out.

Try to avoid these highly congested areas as they attract a lot of attention from the professionals. When testing your Trading strategy, you will not always know the potential slippage that your trading strategy can be subjected to. However, if we assume a % of our trade being slippage this will reflect a more realistic analysis of our results.

An alternative to taking trades above resistance and below support is to wait for these trade-setups and look for the potential spike trade before committing a position. This will at least keep you out for the most part of those dreaded spike stops.

You will typically see this occur on the GBPUSD during the European session. Particularly if there is little to no news, expect the bank traders to be working both sides of the market looking for the soft zones for easy stop hunting.

Until our next quick tip have a great trading day.

Cheers

Shane Fry GMT Trading Coach

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