Translated from Russian by Google Translate
2 Сентябрь 2009

Protective orders. «For» and «against»

All future traders with «childhood» accustom to the fact that it is necessary to defend their positions. About this firm in every textbook about Forex. Any tactics Forex involves the use of protective orders. So after all the trade a red thread runs obsessive Board: «Use of protective orders!» I know many people who practice the trade without the use of protective orders, but I must say that sooner or later these people will lose their money. Not to say that the root cause of this loss was non-use of protective orders, but the lack of protection still played a destructive role.


What I mean? Besides that any forex trading tactics have to be built by all the rules of money management. That is, the use of protective orders. Generally, in the theory of building stops distinguish two types: physical warrants and warrants thought. First exhibited at the market, while the latter only planned in a predetermined location. Both orders in its own good.

Lack of a mental order is that we plan the advance, which will close a position, but we can not manage to do it, because it could be a very strong movement. But during a strong movement in our local brokers often have very long pauses in their request to close the position. Therefore, the lack of a mental order is obvious.

With regard to the physical order, it may be a reference for market makers, who may consciously try to «go» for them. But all these moments are not that important. The main thing - to know, coming into the market, when and where you will get out again. Your tactic of Forex trading can be constructed in such a way as not to leave the market in a defined place. You can adjust the placement of orders as the price movement in the Forex market. It is always important to remember that trading in the Forex market, we are dealing with probabilities. And when it comes to something indefinite, we always have to insure themselves against possible trouble.

And now, the consequences that follow the placement of stop orders:

1. There is a seemingly insignificant reason for placing stop orders: when we do this, we subconsciously building up to something that will fail in the currency market. On the one hand, it is very bad, as we advance as a programmable themselves to failure and set a bad installation. But on the other hand, when we place an order, we urge ourselves to respect the rules. Regardless of what we place an order: fix your profit or loss of fixation, we accustom ourselves to keep their weaknesses, to struggle with their greed.
Very often it happens that we find themselves reluctantly fall into a trap when the price goes in the direction we want. We are starting to think that such a movement will continue for a long time, and gradually lose the sense of reality. We think that this will not last forever. But, unfortunately, this is only our illusion that swept away by reality. Price is unfolding, but a warrant for profit-taking success, and we begin to realize how wrong.

2. Another nuance in the tactics of Forex trading lies in the fact that the warrant, which was correctly positioned, be sure to close your position at a better price than if you close the position manually. This is especially true market volatility and the moments when the output of important news. At such moments, better or just watch the scene without taking any action, or open position with the pre protective orders. But during an important news release it is important to bear in mind that the price can make a big push in one direction, which is very difficult to predict.
As a result, may have inadvertently offended one of the warrants. Well, if it is a warrant for profit-taking, but if that stop order, it will be very upset. Exit? Assess their capabilities in terms of common sense and taking into account the peculiarities of a particular currency pair and the importance of news.

How to put a stop order

Classical scheme be placed orders at the opening of the long position is to place below the last line of support, and when you open a short position just above the resistance line. As support and resistance lines can be chosen in different orientations. They can be expressed as a dynamic line, or built using a standard set of technical tools, such as moving averages. Under the dynamic line of resistance, I mean line drawn on the extrema of the current trend.

Below I give an example, as needed, and how not to place protective orders

Tactics of trade on Forex

This graph illustrates the placement of stops near the support line. In this case, we have opened a long position. Price increases and we are all satisfied. It remains for small: to err by placing a protective order. If we put the stop, as shown in the mark of A, then the warrant would be offended. In the second case (B), we placed the order number below the line support, which provides much greater confidence in the strength of this level. It is also ensured by the fact that converge in one place and the line support and moving average. This shows the strength of this level.

If the price penetrates only one line of support, it does not give us full confidence in the strength of such a motion. But if the price penetrates and line resistance, and the moving average, such a signal can be regarded as sufficiently important. As for stop orders to buy, then they should be placed on the same methodology, only slightly above the resistance line.