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Stop Placement:  Double Bottom

Stop Placement: Double Bottom

2010-03-09 00:03:00
Richard Krivo, Trading Instructor
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Instructor's Response:

 
You have the right idea here regarding entering on this double bottom formation. 
 
However there would be no need to place the stop 1200 pips below the entry. There is no need to take on any more risk than is necessary.
 
We would want to identify the lowest point that price has penetrated the double bottom support level that you have identified. Then we would place our stop at a point below which the pair is least likely to trade given current market conditions.  Moreover, if the pair trades below that point, we would want to exit the trade as the market sentiment has changed.
 
Given that this is a Daily chart on a volatile pair, the GBPJPY, the stop could be placed in an area perhaps 75-100 pips below your entry.  
 
See the chart below for a visual on this.  The white line would be the more prudent stop placement.
 
chart 3 08 10

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