There is lots of information around on the internet that suggests good forex trading strategy in the form of where to enter and exit trades. There is not much information out there that suggests good forex strategy by manipulating your stop loss as a means to maximise profit and limit risk. In this article I would like to look at a way of doing just that.
The forex market like most other financial markets moves in waves and it is these waves that experienced traders try to calculate in order to take profits. It is a very basic strategy to wait for the waves to make new highs or lows on the trend before entering the trade, this is known as breaking through the support or resistance levels.
In this example of good forex strategy we are going to use this method to enter our trade. Let's say for instance, the GBP/USD has just broken through the resistance level of 16000. We wait for the currency to show that it is going to hold above this level and enter at 16015 with 10 a pip trade. When trends break through new levels they tend to have a quick burst before stalling slightly, it is this stall that we are going to look for in our profit taking.
For example, the trend has moved through to 16027 a 10 pip burst from our entry point including the spread. It is now good forex strategy to do some profit taking. We take out 80% of our trade or 8 per pip that gives us 80 profit and leaves 2 a pip still running. It is now the manipulation of our stop loss that will see future profits or a no lose trade.
We bring our stop loss up to our entry point which gives us a very small stop loss of 10 pips, the idea behind this is if the trend is strong it will continue further before reversing back to its previous resistance level which should now become support. We could be in for a long term trade with 100's of pips profit. If it reverses back and takes our stop loss out we have still made 80. This is a good forex strategy for maximising profits and limiting losses.