Now that you understand how we analyze the markets and identify major SR levels, and how we enter a trade based on one of our entry reasons, it is time to set up the exits.
We will be using a hard stop loss with every trade. This means our stop loss will be determined and entered with the broker on every trade. Also, we will set a profit target for 1 of our 2 positions and use a number of options for exiting our 2nd position.
Stop Loss (SL): It is very important to limit your risk. Place a hard stop loss on all trades. The risk on the position is called 1R. The SL will be set 1 ATR below the swing low for buy trades, and above the swing high for sell trades. Round down the ATR reading to the nearest 5 pips. For example, if the ATR is .1806 then us 15 pips. If it is .00434 then use 40 pips. If the ATR goes anywhere above .0050 then use 50 pips. This is already a large SL on a 4-hour chart and could be the result of extreme short term volatility which will not last long.
Risk Minimums: Once you have added your SL using the ATR, the total risk (R) on the trade should be 30 pips on H4 trades & 20 pips on H1 trades at a minimum.
Profit Target (TP): Set the profit target on position 1 at 1R, and no profit target on position 2.
If 1R profit is reached move the stop loss on the remaining position to breakeven (BE). The price will either hit the profit target or the stop loss. Don’t micromanage the trade. The price can do anything after you have entered, and closing a trade early usually results in a worse result.
Once the target is hit on the position 1 and the SL is changed to BE on position 2, exit position 2 at the next SR level where an engulfing bar appears on the H1 timeframe. There are a few different options for trailing a stop loss, and you will learn them over time. For now, keep it simple and focus on the SR levels and how price reacts to them.
Trader’s Mindset:
You’ve analyzed the market, entered the trade and set up your exits. Your work is done no matter what the market tells you! Don’t listen to the voices trying to sabotage your hard work. Moving your stop is a mistake, closing out the trade early is a mistake, babysitting your trade is a mistake. More and better analysis is not the solution to your trading difficulties or lack of consistent results. Your attitude and state of mind WILL determine your results.
A trade is a trade is a trade, and only putting many of them together can you begin to see what is working and what isn’t. Executing each one correctly is your job.