Developing one’s own trading strategy: placing Stop Loss and Take Profit orders (stage 5)

So, we are in the market. We only have to place Stop Loss and Take Profit orders and wait for the outcome.

Recommendations on placing Stop Loss orders

In the FOREX market in my opinion it is ineffective to use Stop Loss orders closer than at the distance of 40-50 pips from the entry point. Stop Loss orders placed closer will be most probably «sentenced». The point is that entering the market you can’t catch the very bottom or the peak. The error usually constitutes 10-15 pips. Plus spread constitutes several pips. And if we also take into account the market «noise» (10-15 pips), it becomes clear that a Stop Loss order placed at the distance less than 40-50 pips from the entry point has almost no chances to outlive the position.

Stage 5. Placing Stop Loss and Take Profit orders

We place a Stop Loss order 15 pips below the last bottom (in order to exclude the «noise»). We place a Take Profit order at a doubled distance (i.e. profit/loss ratio is 2/1). In our example the levels of Stop Loss and Take Profit orders will be 1.3123 and 1.3423 correspondingly.

The result of this transaction is shown in Figure 1. The execution of the Take Profit order gave a profit of 200 pips that constitutes in money equivalent $ 2,000 per 1 lot (for invested $1,323).