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Placing Stops and Limits

Placing Stops and Limits

Richard Krivo, Trading Instructor

Instructor's Response:

You are correct...it will be covered later but just to provide you with an overview, take a look at the chart below...

The black line labeled Entry represents the point the trade will be entered short.  The pair will be sold at that point as it broke through a level of support.  The Stop, the red line, will be placed just above a previous level of resistance.  The Limit, the green line, will be placed at roughly double the amount of the stop so that a 1:2 Risk Reward Ratio is in place on the trade.

Conversely, if the trade were a long position, in other words the trader was buying the pair, the stop would be below the entry and the limit would be above the entry... the reverse of what is on the chart.

To place stops and limits on a trade, in each case the trader would specify the price at which they would like to be taken out of the trade.  In this instance represented on the chart below the stop would be at 1.4693 and the limit would be at 1.4397.

Chart 12 21 09


 

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