The Placing of a Stop
Student’s Question:Where should I place the stop order? The high of the wick seems too much? Instructor’s Response:In this example we would want to place our stop just above the top of the long wick noted and enter the trade on the open of the next candle. The rationale for the stop placement is that if price action trades above the level of that long wick, the previous high of the retracement, market sentiment on the pair has changed from bearish to bullish and a short position is no longer prudent.
Another entry strategy on this pair would be to drill down to a 1 hour or a 4 hour chart to see if an entry in the direction of the trend on a shorter time frame would work. Stops will not necessarily be as deep on the shorter time frames. Keep in mind that whatever chart is used for stop placement, a stop should not be placed at such a point that, if triggered, more than 5% of the trading account would be lost.Also, the pair is in a downtrend on this historical Daily chart of the EURUSD, the RSI is showing bearish momentum, and there is a long wick. As such, this would be a higher probability entry.
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