How to Avoid Unnecessary Stop Losses
One of the most frustrating aspects of trading is when you nail the direction of a currency pair but the timing is off and you get stopped out before the big move happens.
This hurts you two fold:
- You take a realized loss when you get stopped out.
- Many times, you are then gun shy and don’t re-enter the trade, missing the eventual move.
Can you relate to this?
Here‘s an illustration of how our Currency Strength Indicator not only tells you which currencies to pair together for the highest probability trade set up (based on strongest VS weakest currency) but also how to time it perfectly so that you grab the profits for your account and don’t occur unnecessary losses.
First thing to notice is which currencies NOT to trade. Every currency except the AUD (orange line at the top) and the JPY (yellow line at the bottom) are trading sideways and near the dotted zero line. With a quick glance, you can avoid any pairs with these currencies in them.
So, the strongest by far is the AUD (top) and the weakest is the JPY (bottom). That gives you a clear pair to trade based on strength VS weakness which gives you the highest probability trade set up at the moment.
However, we can also measure momentum in the market which tells us when this pair is most likely to move significantly. What we look for on the indicator is a very sharp line to the far right moving up or down. Here is an example:
When you look again at the sideways pattern of the AUD and JPY lines on IMAGE 1 above, you realize there is no current momentum. So, we must wait until that is present. Let’s look at the chart to see this play out.
Our indicator showing no momentum corresponds to the sideways channel I have marked in red. So, even if you had the right trade, meaning you’ve identified the right pair and direction, you were still probably stopped out especially if you entered near the top of the channel. This is probably a situation you are all too familiar with.
On the flip side, once our indicator started showing momentum entering the market, you can see that price broke through the channel to the upside as we expected and went up about 100 pips. Even if you were late and waited for a confirmation from our indicator, you could have entered where I marked the entry above and grabbed 34 pips at the top of the move.
Our Currency Strength Indicator is a free tool that can help you pick which pairs to avoid, which to trade and also determine exactly when to enter.
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