Forex Trading Strategy - Treat Different Currency Pairs Differently

While we recommend traders always use a protective stop when in a trade, identifying that stop level can be a daunting task for new traders.

One thing we do not recommend is using a fixed amount to risk on each of your trades. An example would be risking 25 pips on every trade, no matter what pair you are trading. The reason we don’t recommend this is that the daily range of two currency pairs can be very different. The daily range of the EUR/GBP over the last month has been about 50 pips. That means the high and low of the day are about 50 pips apart. However, the daily range of the GBP/JPY over the last month has been about 300 pips. So using the same arbitrary number of pips to risk in both pairs may mean a profitable trade in one pair and a losing trade in another.

We recommend the use of support and resistance to determine your initial protective stop placement. If you buy on a bounce off of support, place your stop below that support level. If you sell on a bounce off of resistance, place your stop above that resistance level. This way your risk level is automatically adjusted to the volatility of the market you are trading. If you are using a 1:2 risk:reward ratio where you look for twice your risk in potential profit. Your risk and reward are now both adjusted to the pair you are trading. This will keep you in more trades which increases your chance of success.

There are many differences between new traders and professionals. But many of them have little to do with their expertise of the markets and more to do with their own actions. As an FX Power Course instructor, I get many emails from students who have had a bad trade and want to know what they did wrong. As they describe their trade and what they were thinking at the time, I start to hear some hedging in their explanation. This trade was “almost the setup I look for” or that “the trade was only taken because there was nothing else setting up”. The problem is that new traders feel they have to be in a trade all the time to be successful. But in reality it is the other way around. Professional traders do not mind waiting for the quality setups. As a matter of fact, this is one of their edges. They do not trade for the fun or for the excitement, but rather they trade to win. Having the patience to just sit and watch and not trade is an easy thing to describe, but very hard to do. It can be very frustrating watching the market move without being in a trade. This frustration can lead to questionable setups being taken in an attempt to be in on every move. But entering into or exiting from a trade because of impatience is never the right reason for your action. Having the patience and discipline to wait for the quality setup is the mark of a confident trader. They realize that sometimes the best trade is no trade at all.