Using Stops Effectively

ANALYSIS

Sunil Mangwani leads a discussion on methods to effectively use stops to preserve trading capital. In this article, he outlines ways to use the pivot point formulas as stop placement zones when trading Forex markets.

The first priority of a trader is to conserve trading capital.
The trader’s capital is his bloodline. Without capital, it is not possible to trade, so preserving it becomes a matter of utmost importance.
It is only natural that when a trade is initiated, the focus tends to be on potential profits rather than on the possibility of loss. We are usually so convinced that a trade will be profitable, that we tend to ignore the possible losses that would occur should the trade go wrong. One must accept that losses in trading are inevitable, but a successful trader is one who manages and controls the losses.

Therefore, a trader must have a money management policy, which is nothing but a set of techniques to help minimize the risk of loss, while still enabling him to participate in major profitable trades.

Ironically, it is probably the most critical aspect of trading while also being the most overlooked. Money management becomes an absolute must in the Forex markets, due to the use of high leverage values. Hence entering a trade with a proper stop loss and exiting the trade with a sufficient profit, conserves and increases a trader’s capital.

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