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A Key to Unlock Your Forex Trading Potential
The following is a lesson in the Trading Insights chapter from the AT Ladder Strategy course. It is entitled Stops Drive the Forex Market. Incorporate this into your trading and you will have a key to unlock your forex trading potential using insights you might not find elsewhere.
Stops Drive the Forex Market.
Stops are a key to trading, both where you place your stop and the market's constant quest to run stops (tells you what side is most vulnerable).
Stops Drive the Forex Market
The forex market is on a neverending quest to run stops. This is true across all time frames. It is what drives the price action, especially on an intra-day basis. Identifying where stops may be lying gives a clue what side of the market is most at risk at any point in time.
Given the opportunity, the market, run by the algos, will look to trigger stops. When there are no stops left to run, a currency will generally settle into a range.
Stops: Treat them as insurance
Stops should be viewed as an insurance policy, which means where you place your stop should matter but not be solely based on how much you are willing to risk. This does not mean you should be taking unlimited risk but setting up a risk profile and then looking for trades that do not exceed your criteria.
Your stop should be placed at a level that has a meaning to your trade (e.g. around an AT line). In other words, a stop should be placed at a level that keeps you in a trade when right and if triggered, tells you your trade is not working out as expected or as catastrophic insurance to protect your position from an unexpected news event.
If you think of your stops as an insurance policy you will understand the logic behind using AT ladder lines as your stops in this trading strategy
A Word for All Traders
In all cases, use an AT ladder line as your stop and make sure that you are comfortable with the risk you are taking before putting on a trade. AT will tell you when the trade is going your way and at what level it is not or no longer working out so you can control your risk,
In any case, effective use of AT with a trading strategy includes the consistent use of stops, and it is expected that the trader will set and follow them as described
Beware of widening spreads
When placing a stop you need to be aware of widening bid-offered spreads just before and after key data releases. In addition, spreads widen just after 5 PM Eastern time in the US when a new trading day begins.
Point is it is one thing to be stopped out by being wrong and another by widening spreads, which may have little to do whether your trade is right or wrong. You want to avoid the latter.
Click to get access to the AT Ladder Strategy or Sign up for the Amazing Trader or contact me for any crisis market specials.
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