Abstract:

About trading or invest capital in forex markets no matter if the case is contest or live account, is very important to have the best strategy about placing a proper protective stop to prevent losses in our accounts.

Price action triggered my stop just by few pips and then come back making a retracement and went into the money, was a bad trade because the calculation of that stop was not made proper.

Few options to make stops calculation:

Based on my own experience I have encounter that we can choose stops using indicators, by financial goals or simply avoid to set a stop. The last one is very danger but I have notice that without any stops we can leave price action to run and reach a target leaving it to work at least one or two days.

I will develop few examples to show the options detailed below so we can understand easily the goal of each technique that I intend to explain.
The entries are assumed and maybe someone has placed one like this by you own criteria.

So I have this and put on the table, maybe you can tell to me later what is best based on your own experience or there are another better one.

1.- ATR:

The average true range, can help us to measure volatility and set stops, but today I will explain only the capacity to set stops.

So, we can use the standard ATR with 14 periods and get the value called for me base.
This base I will multiplied by an integer of 2 or 3, it depends how aggressive want to be.
If is 3 means less aggressive than 2 because the final stop will be big.
This base can be added to an ask or bid price depends if we go short or long.

My maximun stop could be:

Stop to send buy order = Bid - ATR(14) * 3
Stop to send sell order = Ask + ATR(14) * 3

This trade show us that placing a stop can save us from a big loose, about -60 pips.
The entry was planned on friday night and then go to bed.
As we can see price action open monday with a big gap.

This trade is planned to get advantage of the gap and placing a stop to prevent any loss by filling the gap.
In this case we get +50 pips in less than 10 hours.

2.- Fibonacci levels:

If we do not want to make any calculation the option could be to use the fibonacci levels.
So, we can setup or configure it to drag and drop.

Take this tool from the planned entry and we make an extension towards the planned target usually at support or resistance level.
This make the calculation and give to us the final value to put into the order.
For me is best if choose the common levels as entry / exit / stop, that is 38%, 61% ,161%.
In this case the loss is about -40 pips.

The winning trade is more than +80 pips with two days.

3.- Range or Volatile market:

The final option and for me the most used, if the pair to work it on as range AUD/USD I set as stop 30 pips from the entry.
But if I choose a volatile pair as USD/JPY the stop will be 60 pips from the entry to give some extra room to the price action let it run.