Trade Risk Management

We discussed the EUR on Friday and mentioned that Support and Resistance traders would be looking for an opportunity to go long if there was a bounce off Support. An entry did not materialize but if one had, a stops loss would have been placed just below Support. If sellers push the EUR down below Support it will experience a sizable drop as stops will be triggered and that is precisely what we saw. You can see from the 4hr chart below there was no chance for recovery as buyers were not going to step in as the EUR fell through 4 year lows. Losses will happen, so risk management is critical. The Support and Resistance trader is not without success though. Look how many wins he was able to produce before that loss, as he caught the bounce in each direction.
The Pound had been rising since mid May. It bottomed near 1.4250. Trend line Support sits just above the 50 day moving average on this 4 hr chart. Some traders would place a Stop Loss at that level. Other traders, perhaps less conservative in their approach, would place a stop loss at the open of the large candle (see blue arrow). There are valid reasons for both placements. Another method to consider is a partial unwind. A trader can utilize a staggered approach whereby a portion of the position is unwound at one level and the remaining position is closed out on a breach of the failsafe level. If price recovers before reaching the final stop you will still have part of the position intact. If price continues to fall then at least you did not exit your entire position at the low, thereby preserving your investment capital.
Gold has been soaring high since mid April. If you caught this move on the cross of the 50 day moving average back over the 100 day moving average you are doing great. But what if you got in late on this move. Perhaps you went long Gold after it broke the previous high. When price action goes immediately in your direction you can set a break even stop loss. That can also knock you out of a position prematurely.  Some trader utilize a trailing stop, however this on its own can be arbitrary. It is usually better to use Support levels or even round figures such as 1,200 in this case. Here, advanced traders should use the 50 day moving average as it has been holding firm Support since early April. The longer a position holds Support the stronger that level of Support becomes.
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